Or, why it was so important to keep top marginal income tax rates constant for millionaires.
Figure 1 depicts the income shares accruing to the top 0.5 percent and top 0.1 percent of households (including realized capital gains). It is clear that their shares have declined going from 2007 to 2008; for the top 0.1%, their share has declined from 12.3% to 10.4% of total income.
Figure 1: Pretax income shares (including realized capital gains) accruing to top 0.5% of households (dark blue line) and to top 0.1% (dark red line). Source: updated version of Piketty and Saez (2007).
The income threshold for the top 0.5% is $558,726 in 2008 (the average income for households in the 0.5% to 0.1% range is $878,139). The income threshold for the top 0.1% is $1,695,136 in 2008. The framework currently under consideration in the Congress maintains the marginal tax rates applying to these income fractiles constant.
Corresponding graphs for top 5% and 1% income fractiles, either including or excluding realized capital gains, are displayed in this post.
Update, 8/2 9am Pacific: Readers AS and Buzzcut conjecture that rising income inequality is being driven almost solely by capital gains, despite large amounts of evidence to the contrary. Reader acerimusdux asserts that the rise in inequality is not strongly linked to equity markets. Below I present the series analogous to those in Figure 1, excluding realized capital gains.
Figure 2: Pretax income shares (excluding realized capital gains) accruing to top 0.5% of households (dark blue line) and to top 0.1% (dark red line). Source: updated version of Piketty and Saez (2007).
The pattern shown in Figure 1 remain in Figure 2; in fact, if anything, the pattern is even stronger (the top 0.1% receives 13.8% here, versus 10.4% in the ex.-capital gains series).