Berkeley economist Emmanual Saez has won the 2009 John Bates Clark Medal, awarded bi-annually by the American Economic Association since 1947 to “that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge.”

Past recipients have included Paul Samuelson, Milton Friedman, Bob Solow, James Tobin, Ken Arrow, Gary Becker, Paul Krugman, and Larry Summers.

Some of the work highlighted in the award announcement was Saez’s and Thomas Piketty’s estimates, using IRS data, of the percent of income going to the top 1%. They show that between 1980 and 2004, there was a doubling of income going to the top 1% of taxpayers. However, in a January 2007 Policy Analysis, “Has U.S. Income Inequality Really Increased?”, economist Alan Reynolds has poked a number of holes in their data and, especially, in the way many people, including Piketty and Saez, have interpreted their data. The most damning critique leveled by Reynolds, in my opinion, is that they don’t take adequate account of a major change in the tax system in the Tax Reform Act of 1986. This Act dropped the top marginal tax rate on individual income from 50% to 28%, thus bringing the rate below the tax rate on corporate income. Shortly, after, thousands of corporations shifted from C corporations to S corporations so that their owners could pay the lower personal tax rates. The result: a major increase in apparent individual income at the top of the income distribution without necessarily a shift in the underlying reality. Reynolds writes up his results in a Cato analysis. Mark Thoma highlights Piketty’s and Saez’s response. On Thoma’s site, scroll down to Reynolds’s response. It’s worth quoting, and not mainly because it refers to a joint Wall Street Journal article by Alan and me:

For Mark: Piketty and Saez did not claim I misquoted them or that my calculation was wrong, so no correction is needed. Actually, their figures show the top 1% received 9.7% of pretax personal income in 2004, so my Dec 14 estimate was too generous. On the CBO’s estimate of top 1% income see my piece with David Henderson in February 6 Wall Street Journal.