Selling Stocks Makes You Richer (Even if You Buy Them Back)

According to NPR.  Unfortunately there is no link for radio stories, but this morning they summarized a Saez study by saying it claimed that America’s richest got much “wealthier” in 2012 by selling stocks ahead of the tax increases.  Seriously.

Here is the BBC, in a somewhat less embarrassing version of the story:

The income gap between the richest 1% of Americans and the other 99% widened to a record margin in 2012, according to an analysis of tax filings.

The top 1% of US earners collected 19.3% of household income, breaking a record previously set in 1927.

Income inequality in the US has been growing for almost three decades.

Overall, the pre-tax incomes of the top 1% of households rose 19.6% compared to a 1% increase for the rest of Americans.

And the top 10% of richest households represented just under half of all income in the year, according to the analysis.

Emmanuel Saez at the University of California, Berkeley, one of the economists who analysed the tax data, said the rise may have been in part because of sales of stock to avoid higher capital gains taxes in January.

As I keep saying, income inequality data is basically meaningless, regardless of whether you include cap gains or not.  Economists should focus on economic inequality, which is best measured by consumption inequality.  The data there looks far better.  That’s not to say there isn’t room for improvement.  Economic deregulation (removing barriers to entry from professions) and weakening intellectual property rights laws would helps improve economic inequality.  One of the main causes of growing income inequality is the movement from high MC production (coal, steel, cars, toasters) to ultra low MC production (Facebook, Microsoft, Apple, Google, eBay, pharmaceuticals, etc).  The big gains get shared by the techies and the finance industry that spots the winners and funds them.

And don’t forget that America has lots and lots of problems that are much more pressing than “inequality.” That’s where policy reform should be focused.

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About Scott Sumner 492 Articles

Affiliation: Bentley University

Scott Sumner has taught economics at Bentley University for the past 27 years.

He earned a BA in economics at Wisconsin and a PhD at University of Chicago.

Professor Sumner's current research topics include monetary policy targets and the Great Depression. His areas of interest are macroeconomics, monetary theory and policy, and history of economic thought.

Professor Sumner has published articles in the Journal of Political Economy, the Journal of Money, Credit and Banking, and the Bulletin of Economic Research.

Visit: TheMoneyIllusion

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