While on the topic, don't miss Saez and Piketty's response to Alan Reynolds criticism in the Wall Street Journal of their work.
Looks to me like a major can of whupass. Also, I am glad to say that, after reading only DeLong's takedown of Reynolds, I anticipated that they would respond to his claim about tax avoidance by noting the similarity of the increase in the inequality of income plus capital gains to the increase in the inequality of income.
Alan Reynolds points out that reported incomes may not reflect true incomes because of tax evasion or tax avoidance. This is a legitimate concern and we, along with a number of colleagues, have actually spent substantial time investigating this issue. Alan Reynolds has picked some of the facts in order to provide a very skewed view. Most of the scenarios described by Alan Reynolds, such as a shift from corporate income to individual income or from qualified stock-options to non-qualified stock options, would imply that high incomes used to receive capital gains instead of ordinary income. For example, a closely held C-corporation which does not distribute its profits increases in value and those accumulated profits would appear as realized capital gains on the owner individual tax return when the business is sold. Yet, our top 1% income share series including realized capital gains has also doubled from 10.0% in 1980 to 19.8% in 2004.
Brad DeLong Piles on. The last link puts Reynolds in a class with Lott (except for the sock puppetry of course).