IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/27752.html
   My bibliography  Save this paper

Business Incomes at the Top

Author

Listed:
  • Wojciech Kopczuk
  • Eric Zwick

Abstract

Business income constitutes a large and increasing share of income and wealth at the top of the distribution. We discuss how tax policy treats and shapes how businesses are organized and how they distribute economic gains to owners, with the focus on closely-held and pass-through firms. These considerations influence whether and how labor and capital income is observed in economic data and feed into research controversies regarding the measurement of inequality and the progressivity of the tax code. We discuss the importance of these issues in the US, and highlight that limited evidence from other countries suggests that they are likely to be important elsewhere.

Suggested Citation

  • Wojciech Kopczuk & Eric Zwick, 2020. "Business Incomes at the Top," NBER Working Papers 27752, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27752
    Note: CF PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w27752.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dennis Fixler & Marina Gindelsky & David Johnson, 2019. "Improving the Measure of the Distribution of Personal Income," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 302-306, May.
    2. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 2021. "Accounting for Wealth-Inequality Dynamics: Methods, Estimates, and Simulations for France," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 620-663.
    3. Conor Clarke & Wojciech Kopczuk, 2017. "Business Income and Business Taxation in the United States since the 1950s," Tax Policy and the Economy, University of Chicago Press, vol. 31(1), pages 121-159.
    4. Matthew Smith & Owen Zidar & Eric Zwick, 2020. "Top Wealth in America: New Estimates and Implications for Taxing the Rich," Working Papers 264, Princeton University, Department of Economics, Center for Economic Policy Studies..
    5. Thomas Piketty, 2011. "On the Long-Run Evolution of Inheritance: France 1820--2050," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1071-1131.
    6. Garbinti, Bertrand & Goupille-Lebret, Jonathan & Piketty, Thomas, 2018. "Income inequality in France, 1900–2014: Evidence from Distributional National Accounts (DINA)," Journal of Public Economics, Elsevier, vol. 162(C), pages 63-77.
    7. Michael Cooper & John McClelland & James Pearce & Richard Prisinzano & Joseph Sullivan & Danny Yagan & Owen Zidar & Eric Zwick, 2016. "Business in the United States: Who Owns It, and How Much Tax Do They Pay?," Tax Policy and the Economy, University of Chicago Press, vol. 30(1), pages 91-128.
    8. Gordon, Roger H. & MacKie-Mason, Jeffrey K., 1994. "Tax distortions to the choice of organizational form," Journal of Public Economics, Elsevier, vol. 55(2), pages 279-306, October.
    9. Thomas Piketty & Emmanuel Saez, 2007. "How Progressive is the U.S. Federal Tax System? A Historical and International Perspective," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 3-24, Winter.
    10. Helen Miller & Thomas Pope & Kate Smith, 2024. "Intertemporal Income Shifting and the Taxation of Business Owner-Managers," The Review of Economics and Statistics, MIT Press, vol. 106(1), pages 184-201, January.
    11. Karin Edmark & Roger H. Gordon, 2013. "The choice of organizational form by closely-held firms in Sweden: tax versus non-tax determinants," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 22(1), pages 219-243, February.
    12. Annette Alstadsaeter & Wojciech Kopczuk & Kjetil Telle, 2014. "Are Closely Held Firms Tax Shelters?," Tax Policy and the Economy, University of Chicago Press, vol. 28(1), pages 1-32.
    13. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
    14. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2018. "Distributional National Accounts: Methods and Estimates for the United States," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 133(2), pages 553-609.
    15. repec:cbo:report:513612 is not listed on IDEAS
    16. Annette Alstadsæter & Martin Jacob & Wojciech Kopczuk & Kjetil Telle, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from Norway," NBER Working Papers 22888, National Bureau of Economic Research, Inc.
    17. repec:cbo:report:513613 is not listed on IDEAS
    18. Mackie-Mason, Jeffrey K & Gordon, Roger H, 1997. "How Much Do Taxes Discourage Incorporation?," Journal of Finance, American Finance Association, vol. 52(2), pages 477-505, June.
    19. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1991. "The Allocation of Talent: Implications for Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(2), pages 503-530.
    20. Anthony Atkinson & Thomas Piketty, 2007. "Top incomes over the twentieth century: A contrast between continental european and english-speaking countries," Post-Print halshs-00754859, HAL.
    21. Andreas Fagereng & Luigi Guiso & Davide Malacrino & Luigi Pistaferri, 2016. "Heterogeneity in Returns to Wealth and the Measurement of Wealth Inequality," American Economic Review, American Economic Association, vol. 106(5), pages 651-655, May.
    22. Congressional Budget Office, 2016. "The Distribution of Household Income and Federal Taxes, 2013," Reports 51361, Congressional Budget Office.
    23. Tasha Fairfield & Michel Jorratt De Luis, 2016. "Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary Chile," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(S1), pages 120-144, August.
    24. le Maire, Daniel & Schjerning, Bertel, 2013. "Tax bunching, income shifting and self-employment," Journal of Public Economics, Elsevier, vol. 107(C), pages 1-18.
    25. Wojciech Kopczuk, 2015. "What Do We Know about the Evolution of Top Wealth Shares in the United States?," Journal of Economic Perspectives, American Economic Association, vol. 29(1), pages 47-66, Winter.
    26. Bricker, Jesse & Hansen, Peter & Volz, Alice Henriques, 2019. "Wealth concentration in the U.S. after augmenting the upper tail of the survey of consumer finances," Economics Letters, Elsevier, vol. 184(C).
    27. Thor O. Thoresen & Annette Alstadsæter, 2010. "Shifts in Organizational Form under a Dual Income Tax System," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 66(4), pages 384-418, December.
    28. Congressional Budget Office, 2019. "The Distribution of Household Income, 2016," Reports 55413, Congressional Budget Office.
    29. Goolsbee, Austan, 2004. "The impact of the corporate income tax: evidence from state organizational form data," Journal of Public Economics, Elsevier, vol. 88(11), pages 2283-2299, September.
    30. Jesse Bricker & Alice Henriques & Jacob Krimmel & John Sabelhaus, 2016. "Measuring Income and Wealth at the Top Using Administrative and Survey Data," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 261-331.
    31. Goolsbee, Austan, 1998. "Taxes, organizational form, and the deadweight loss of the corporate income tax," Journal of Public Economics, Elsevier, vol. 69(1), pages 143-152, July.
    32. Baumol, William J., 1996. "Entrepreneurship: Productive, unproductive, and destructive," Journal of Business Venturing, Elsevier, vol. 11(1), pages 3-22, January.
    33. Waseem, Mazhar, 2018. "Taxes, informality and income shifting: Evidence from a recent Pakistani tax reform," Journal of Public Economics, Elsevier, vol. 157(C), pages 41-77.
    34. Onji, Kazuki & Tang, John P., 2017. "Taxes and the Choice of Organizational Form in Late Nineteenth Century Japan," The Journal of Economic History, Cambridge University Press, vol. 77(2), pages 440-472, June.
    35. Jarkko Harju & Tuomas Matikka, 2016. "The elasticity of taxable income and income-shifting: what is “real” and what is not?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 23(4), pages 640-669, August.
    36. Atkinson, A. B. & Piketty, Thomas (ed.), 2007. "Top Incomes Over the Twentieth Century: A Contrast Between Continental European and English-Speaking Countries," OUP Catalogue, Oxford University Press, number 9780199286881.
    37. Richard Burkhauser & Markus Hahn & Roger Wilkins, 2015. "Measuring top incomes using tax record data: a cautionary tale from Australia," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 13(2), pages 181-205, June.
    38. Goupille-Lebret, Jonathan & Infante, Jose, 2018. "Behavioral responses to inheritance tax: Evidence from notches in France," Journal of Public Economics, Elsevier, vol. 168(C), pages 21-34.
    39. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    40. Branko Milanovic & Tasha Fairfield & Michel Jorratt De Luis, 2016. "Top Income Shares, Business Profits, and Effective Tax Rates in Contemporary Chile," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62, pages 120-144, August.
    41. repec:cbo:report:513611 is not listed on IDEAS
    42. Kopczuk, Wojciech & Alstadsæter, Annette & Jacob, Martin & Telle, Kjetil, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from," CEPR Discussion Papers 11671, C.E.P.R. Discussion Papers.
    43. Michael M. Batty & Jesse Bricker & Joseph S. Briggs & Alice Henriques Volz & Elizabeth Ball Holmquist & Susan Hume McIntosh & Kevin B. Moore & Eric R. Nielsen & Sarah Reber & Molly Shatto & Kamila Som, 2019. "Introducing the Distributional Financial Accounts of the United States," Finance and Economics Discussion Series 2019-017, Board of Governors of the Federal Reserve System (U.S.).
    44. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 0. "Accounting for Wealth-Inequality Dynamics: Methods, Estimates, and Simulations for France," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 620-663.
    45. Emmanuel Saez & Gabriel Zucman, 2016. "Editor's Choice Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 519-578.
    46. Facundo Alvaredo & Lucas Chancel & Thomas Piketty & Gabriel Zucman, 2018. "Distributional National Accounts," Post-Print halshs-03342488, HAL.
    47. Michael Wolfson & Mike Veall & Neil Brooks & Brian Murphy, 2016. "Piercing the Veil: Private Corporations and the Income of the Affluent," Canadian Tax Journal, Canadian Tax Foundation, vol. 64(1), pages 1-30.
    48. Tazhitdinova, Alisa, 2020. "Are changes of organizational form costly? Income shifting and business entry responses to taxes," Journal of Public Economics, Elsevier, vol. 186(C).
    49. Romanov, Dmitri, 2006. "The corporation as a tax shelter: Evidence from recent Israeli tax changes," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1939-1954, November.
    50. Erin Henry & George A. Plesko & Steven Utke, 2018. "Tax Policy and Organizational Form: Assessing the Effects of the Tax Cuts and Jobs Act of 2017," National Tax Journal, National Tax Association;National Tax Journal, vol. 71(4), pages 635-660, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nishant Yonzan & Branko Milanovic & Salvatore Morelli & Janet Gornick, 2022. "Drawing a Line: Comparing the Estimation of Top Incomes between Tax Data and Household Survey Data," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 67-95, March.
    2. Bukowski, Pawel & Chrostek, Pawel & Novokmet, Filip & Skawinski, Marek, 2023. "Income inequality in the 21st century Poland," LSE Research Online Documents on Economics 121282, London School of Economics and Political Science, LSE Library.
    3. Burdín, Gabriel & De Rosa, Mauricio & Vigorito, Andrea & Vilá, Joan, 2022. "Falling inequality and the growing capital income share: Reconciling divergent trends in survey and tax data," World Development, Elsevier, vol. 152(C).
    4. Paweł Bukowski & Filip Novokmet, 2021. "Between communism and capitalism: long-term inequality in Poland, 1892–2015," Journal of Economic Growth, Springer, vol. 26(2), pages 187-239, June.
    5. Di Nola, Alessandro & Kocharkov, Georgi & Scholl, Almuth & Tkhir, Anna-Mariia & Wang, Haomin, 2022. "Taxation of Top Incomes and Tax Avoidance," VfS Annual Conference 2022 (Basel): Big Data in Economics 264016, Verein für Socialpolitik / German Economic Association.
    6. Andreas Bergh & Anders Kärnä, 2022. "Explaining the rise of populism in European democracies 1980–2018: The role of labor market institutions and inequality," Social Science Quarterly, Southwestern Social Science Association, vol. 103(7), pages 1719-1731, December.
    7. Ram Singh, 2022. "Do the Wealthy Underreport their Income? Analysing Relationship between Wealth and Reported Income in India," Working papers 331, Centre for Development Economics, Delhi School of Economics.
    8. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    9. Selahattin Imrohoroglu, 2023. "Mpk," CIGS Working Paper Series 24-002E, The Canon Institute for Global Studies.
    10. Kwon, Spencer Y. & Ma, Yueran & Zimmermann, Kaspar, 2022. "100 years of rising corporate concentration," SAFE Working Paper Series 359, Leibniz Institute for Financial Research SAFE.
    11. Bukowski, Pawel & Chrostek, Paweł & Novokmet, Filip & Skawiński, Marek, 2023. "Income inequality in the 21st century Poland," LSE Research Online Documents on Economics 121036, London School of Economics and Political Science, LSE Library.
    12. Adhikari, Bibek & Alm, James & Harris, Timothy F., 2021. "Small business tax compliance under third-party reporting," Journal of Public Economics, Elsevier, vol. 203(C).
    13. Bukowski, Pawel & Novokmet, Filip, 2021. "Between communism and capitalism: long-term inequality in Poland, 1892–2015," LSE Research Online Documents on Economics 110221, London School of Economics and Political Science, LSE Library.
    14. Marius Leckelt & Johannes König & David Richter & Mitja D. Back & Carsten Schröder, 2022. "The personality traits of self-made and inherited millionaires," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-12, December.
    15. Pawel Bukowski & Pawel Chrostek & Filip Novokmet & Marek Skawinski, 2023. "Income inequality in the 21st century Poland," CEP Discussion Papers dp1966, Centre for Economic Performance, LSE.
    16. Jarkko Harju & Toni Juuti & Tuomas Matikka, 2023. "Stairway to Heaven? Selection into Entrepreneurship, Income Mobility and Firm Performance," Working Papers 17, Finnish Centre of Excellence in Tax Systems Research.
    17. Oz Shy, 2021. "College Education, Earning Inequality, and Market Power," Journal of Labor Research, Springer, vol. 42(3), pages 334-357, December.
    18. Francesco Furno, 2021. "The Macroeconomic Effects of Corporate Tax Reforms," Papers 2111.12799, arXiv.org.
    19. Zwick, Eric, 2023. "Comments on “Wealth inequality dynamics in Europe and the United States: Understanding the determinants” by Blanchet and Martínez-Toledano," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 44-47.
    20. Mauricio De Rosa & Joan Vilá, 2022. "Beyond tax-survey combination: inequality and the blurry household-firm border," Documentos de Trabajo (working papers) 22-10, Instituto de Economía - IECON.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tazhitdinova, Alisa, 2020. "Are changes of organizational form costly? Income shifting and business entry responses to taxes," Journal of Public Economics, Elsevier, vol. 186(C).
    2. Massenz, Gabriella, 2023. "On the behavioral effects of tax policy," Other publications TiSEM eb44a9f7-b859-480d-b2e4-4, Tilburg University, School of Economics and Management.
    3. Annette Alstadsæter & Martin Jacob & Wojciech Kopczuk & Kjetil Telle, 2016. "Accounting for business income in measuring top income shares. Integrated accrual approach using individual and firm data from Norway," Discussion Papers 837, Statistics Norway, Research Department.
    4. Kopczuk, Wojciech & Alstadsæter, Annette & Jacob, Martin & Telle, Kjetil, 2016. "Accounting for Business Income in Measuring Top Income Shares: Integrated Accrual Approach Using Individual and Firm Data from," CEPR Discussion Papers 11671, C.E.P.R. Discussion Papers.
    5. Matthew Smith & Owen Zidar & Eric Zwick, 2020. "Top Wealth in America: New Estimates and Implications for Taxing the Rich," Working Papers 264, Princeton University, Department of Economics, Center for Economic Policy Studies..
    6. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 2021. "Accounting for Wealth-Inequality Dynamics: Methods, Estimates, and Simulations for France," Journal of the European Economic Association, European Economic Association, vol. 19(1), pages 620-663.
    7. Arun Advani & George Bangham & Jack Leslie, 2021. "The UK's wealth distribution and characteristics of high‐wealth households," Fiscal Studies, John Wiley & Sons, vol. 42(3-4), pages 397-430, September.
    8. Thomas Blanchet & Ignacio Flores & Marc Morgan, 2022. "The weight of the rich: improving surveys using tax data," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 119-150, March.
    9. Advani, Arun & Summers, Andy & Tarrant, Hannah, 2020. "Measuring UK top incomes," CAGE Online Working Paper Series 490, Competitive Advantage in the Global Economy (CAGE).
    10. Jesse Bricker & Sarena Goodman & Alice Henriques Volz & Kevin B. Moore, 2021. "A Wealth of Information: Augmenting the Survey of Consumer Finances to Characterize the Full U.S. Wealth Distribution," Finance and Economics Discussion Series 2021-053, Board of Governors of the Federal Reserve System (U.S.).
    11. Garbinti, Bertrand & Goupille-Lebret, Jonathan & Piketty, Thomas, 2018. "Income inequality in France, 1900–2014: Evidence from Distributional National Accounts (DINA)," Journal of Public Economics, Elsevier, vol. 162(C), pages 63-77.
    12. Moritz Kuhn & Moritz Schularick & Ulrike I. Steins, 2020. "Income and Wealth Inequality in America, 1949–2016," Journal of Political Economy, University of Chicago Press, vol. 128(9), pages 3469-3519.
    13. Aaberge, Rolf & Atkinson, Anthony B. & Modalsli, Jørgen, 2020. "Estimating long-run income inequality from mixed tabular data: Empirical evidence from Norway, 1875–2017," Journal of Public Economics, Elsevier, vol. 187(C).
    14. Filip Novokmet & Thomas Piketty & Gabriel Zucman, 2018. "From Soviets to oligarchs: inequality and property in Russia 1905-2016," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 16(2), pages 189-223, June.
    15. Joachim Hubmer & Per Krusell & Anthony A. Smith Jr., 2020. "Sources of US Wealth Inequality: Past, Present, and Future," NBER Chapters, in: NBER Macroeconomics Annual 2020, volume 35, pages 391-455, National Bureau of Economic Research, Inc.
    16. Zwick, Eric, 2023. "Comments on “Wealth inequality dynamics in Europe and the United States: Understanding the determinants” by Blanchet and Martínez-Toledano," Journal of Monetary Economics, Elsevier, vol. 133(C), pages 44-47.
    17. Diego Winkelried & Bruno Escobar, 2022. "Declining inequality in Latin America? Robustness checks for Peru," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 223-243, March.
    18. Thomas Piketty & Emmanuel Saez & Gabriel Zucman, 2022. "Twenty Years and Counting: Thoughts about Measuring the Upper Tail," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(1), pages 255-264, March.
    19. Bertrand Garbinti & Jonathan Goupille-Lebret & Thomas Piketty, 2021. "Accounting for Wealth-Inequality Dynamics: Methods, Estimates, and Simulations for France," Post-Print halshs-03231244, HAL.
    20. Arjan Bruil (CBS) & Céline van Essen & Wouter Leenders & Arjan Lejour & Jan Möhlmann & Simon Rabaté, 2022. "Inequality and Redistribution in the Netherlands," CPB Discussion Paper 436, CPB Netherlands Bureau for Economic Policy Analysis.

    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:27752. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.