The Trend Movement in the Income Distribution in Wisconsin for a Twenty-Year Period

Abstract

Wisconsin state individual income tax data present an excellent opportunity for a detailed trend study of the changes in the dispersion of taxpayers' income over a long period. The available concept, net taxable income, which is income after deductions except federal income taxes but before exemptions, remained essentially constant in definition from I929 to I949. The minimum filing requirement, rate, and exemption schedules remained the same in this state which has a long heritage of income tax payments. These data are more nearly comparable over a long period and had a much lower filing requirement in 1929 than federal data. This situation makes it plausible to work within the intricate detail of small class intervals for incomes above $2,000 in comparing the income distribution for the year 1929 with that of I 949. The purpose of this study is to examine quantitatively how people in different income ranges lost or gained relatively in comparison with the average percentage increase in the twenty-year period and to state, with qualifications, how much more or less people would have made before federal taxes in 1949 than they did, had the distribution of income remained constant from I929 to I949 for different income ranges. Comparisions of distributions. Both the increase in population and per capita income are considered in accounting for the upward shift in the distribution during the period. The I949 population was I 15 per cent and the Department of Commerce I949 state per capita personal income was 200 per cent of that in I929. If the distribution of income had not changed, the I949 frequencies with incomes approximately double those in I929 should the frequencies of the I929 distribution increased by I5 per cent. The data for such an analysis are given in the accompanying table for individuals making over $i,8oo net taxable income in I929 and $3,600 in I949. It can be seen from the data that only in the income classes from $2,IOO-2,200 in I929 and $4,200-4,400 in I949 are there an equivalent number of returns' The disparity between the two distributions becomes relatively greater for rich income class groups. In an attempt to quantify the change in the concentration ratio or shape of the distribution from I929 to I949 for different segments of the distribution, the question arises how much income rose for different classes in the I929 distribution in the twentyyear period if it did not double. The simple expedient of determining where in the I949 distribution there are as many returns in a class whose class limits and class interval are a certain percentage of those of a I929 class with the same number of returns is used. An example is the class from $2,8002,900 in I929 which has a frequency equal to that from $4,860 to $5,040 in 1949. The best match class limit percentages for the various I929 classes is presented in the last column of the table, with three distinct groups appearing,