By James Pethokoukis

How rich are the richest Americans? It’s a question — one pretty relevant to modern American political debate — that is the subject of the new NBER working paper “Top Wealth in America: New Estimates and Implications for Taxing the Rich” by Matthew Smith, Owen M. Zidar, and Eric Zwick.

But before I dig into it, though, let me ask a different question: What if there were an economic policy that would by itself sharply reduce wealth concentration without any downside to capital formation or entrepreneurial risk-taking? Let’s say Policy X would lower the share of national wealth held by the top 0.1 percent to 15 percent from 20 percent. I would guess that most inequality worriers — with the possible exception of the “all billionaires are a policy error” folks — would see such a policy as an unqualified success. 

Well, some good news then: The research from Smith, Zidar, and Zwick (SZZ) finds that “the top 0.1% wealth share in 2016 is 15% under our approach,“ much less than many other estimates such as the well known ones from Thomas Piketty, Emmanuel Saez, and Gabriel Zucman (PSZ), which put the figure at around 20 percent. The SZZ team builds up on the work of others, including PSZ, while assembling data from a variety of new sources. The new research also shows as a dramatic increase in wealth concentration in recent decades: “From 1989 to 2016, the top 1%, 0.1%, and 0.01% wealth shares increased by 7.6, 5.1, and 3.0 percentage points, respectively, to 31.5%, 15.0%, and 7.0%.” 

To be sure, I am not saying this is the final word on the issue. Creating these estimates is devilishly tricky and incorporates a host of assumptions other economists might challenge. But, for the moment, let’s assume the SZZ effort moves us closer to the reality of the US wealth concentration (which, by the way, the economists still describe as “highly concentrated”). What are the policy implications? One concerns the revenue-raising potential and administrative difficulty of wealth taxes. From the paper:

Given prominent wealth tax proposals focus on the extreme tail of the wealth distribution, our estimates would reduce mechanical wealth tax revenue estimates. We find a larger role for illiquid wealth categories where valuations are more contentious, which could imply higher administrative burdens for a wealth tax or proposals to tax unrealized capital gains.

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