Matthew Smith
Office of Tax Analysis
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
E-Mail: 
Institutional Affiliation: Department of Treasury
NBER Working Papers and Publications
| January 2019 | Capitalists in the Twenty-First Century
with Danny Yagan, Owen M. Zidar, Eric Zwick: w25442
How important is human capital at the top of the U.S. income distribution? A primary source of top income is private “pass-through” business profit, which can include entrepreneurial labor income for tax reasons. This paper asks whether top pass-through profit mostly reflects human capital, defined as all inalienable factors embodied in business owners, rather than financial capital. Tax data linking 11 million firms to their owners show that top pass-through profit accrues to working-age owners of closely-held, mid-market firms in skill-intensive industries. Pass-through profit falls by three-quarters after owner retirement or premature death. Classifying three-quarters of pass-through profit as human capital income, we find that the typical top earner derives most of her income from huma... Published: Matthew Smith & Danny Yagan & Owen Zidar & Eric Zwick, 2019. "Capitalists in the Twenty-First Century*," The Quarterly Journal of Economics, vol 134(4), pages 1675-1745.
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