The income of the top 1 percent of earners fell in 2013 as big tax increases took effect, according to new data released this week.
Both the inflation-adjusted earnings and the share of total income earned by high-income earners fell in 2013, Berkeley professor Emmanuel Saez reported in research including the newest data.
The share of total income earned by the top 1 percent, families with income above $394,000, fell from 22.8 percent to 20.1 percent, and their real income fell by nearly 15 percent.
That decrease in inequality, coming amid a decades-long upward trend in Saez’s data, reflects that several new taxes on high levels of earnings in the U.S. took effect in 2013, Saez said in a note introducing the new statistics.
Those tax changes include the reversal of some of the Bush-era tax cuts for high earners made during the fiscal cliff negotiations at the end of 2012. The top tax rate on individual incomes rose from 35 percent to 39.6 percent as a result of the deal, and capital gains taxes increased from 15 percent to 20 percent. The Obamacare surcharge on capital gains also kicked in during 2013.
The sharp increase in taxes on high incomes in 2013 “created strong incentives to re-time income to take advantage of the lower top tax rates in 2012 relative to 2013 and after,” Saez wrote. In other words, taxpayers shifted as much of their income and capital gains into 2012 to avoid paying higher tax rates in 2013, artificially inflating their reported incomes in 2012 and deflating them for 2013.
Saez added that the income share of top earners likely will rise in 2014, although likely not reach the levels of 2012.
Saez’s statistics, taken from Internal Revenue Service tax return data, include more detail about the fortunes of very high earners than other income data. Working with Thomas Piketty, the author of the surprise best-selling book on inequality Capital in the 21st Century, Saez has elevated awareness of the growth in top incomes and rising inequality.
In his figures, inequality has risen significantly since the late 1970s, and the overall trend is not seriously changed by the slight downtick in 2013.
The income share of the top 1 percent has more than doubled from under 10 percent in the 1970s to above 20 percent in the most recent data, including capital gains. The share of the top 10 percent of earners has grown from below 35 percent to nearly half.
Saez’s data shows the income for the bottom 99 percent of earners stagnating during the first three years of the economic recovery, 2009-2012, growing by just 0.8 percent total over that period and then by 0.2 percent in 2013.
