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You left out one of the biggest causes of this. For many people in that 56%, the year they end up in the top 10% is the year their last surviving parent passes
by TimPC 6y ago
You left out one of the biggest causes of this. For many people in that 56%, the year they end up in the top 10% is the year their last surviving parent passes away. Inheritance is a big one-time windfall for many people.
The other misleading thing is it looks at 44 years of longitudinal data, and doesn't make corrections for differences between the early years and later years. Income has become more polar in the last 40 years, so the current numbers are a fair bit worse than the average numbers of the last 4.4 decades.
- bzbarsky 6y agoInheritances are not taxable (for the recipient), but IRS data shows similar patterns. What it really comes down to is that the upper tail of the "reliable income" distributions is thin enough that a large fraction of the people who end up in various "top N%" buckets are there due to various windfalls, lumpiness of income (e.g. a writer getting an advance that they live on for a few years while writing the book), etc, etc. Which is, by the way, why the way we do progressive taxation is a bit weird. Progressive taxation with tax brackets based on lifetime earnings, as opposed to current-year income, would make a lot more sense in some ways...
- TimPC 6y agoAs much as at first blush progressive taxation based on lifetime earnings might seem fairer, it has extremely dangerous consequences. Having your tax bracket go up throughout your life creates major complications in saving for retirement (and extracting deferred income from retirement savings) which is enough to make the idea wildly impractical in my view.