ABSTRACT
In recent decades, the study of inequality in the United States has been defined by strong claims about historical patterns in the distribution of income and wealth. The most prominent example, advanced by Thomas Piketty in his bestselling book Capital in the 21st Century, presents a U-curve narrative (UCN) spanning the 20th century, in which persistent high inequality in the late Gilded Age gives way to a mid-century leveling, followed by a sharp rebound after 1980. Proponents of this narrative, such as Piketty, Emmanuel Saez, and Gabriel Zucman, diagnose the causes of changing inequality over time and link them not only to historical events but also to specific tax policies. Based on this diagnosis of the causes of the U-curve, they turn next to fiscal policy and recommend tax increases to alleviate the depicted rebound of inequality over the past 40 years and a host of associated social ills. This chapter argues that the prescriptive tax proposals advanced by Piketty, Saez, and Zucman are built upon a serious misreading of the history of income taxation in the United States and the accompanying empirical products of its operation. As an alternative explanation to the causal claims of the UCN, this chapter investigates the possibility that the most prominent features of the depicted U-curve are simply statistical relics of changes to federal income tax liability and the overall federal tax base as distinct from their actual effects upon income or wealth. It proposes an alternative explanation of the U-curve of inequality, wherein both the income share estimate and the wealth share estimate are shown to be highly sensitive to historical modifications to the federal tax code.
