By Elijah Asdourian, Alexander Conner, Moraa Ogendi, Louise Sheiner

What’s the latest thinking in fiscal and monetary policy? The Hutchins Roundup keeps you informed of the latest research, charts, and speeches. Want to receive the Hutchins Roundup as an email? Sign up here to get it in your inbox every Thursday. 

Auditing top-earning taxpayers generates more revenue than it costs

Taxpayers in the 90th to 99th percentile of the income distribution are responsible for the majority of the $500 billion in taxes that go unpaid every year. Using internal IRS information, William C. Boning of the U.S.  Treasury and co–authors find that auditing these earners could generate revenues which exceed their costs more than 12 to 1. This return comprises both the audit’s direct revenues and the additional revenues generated from increased compliance of the audited taxpayers in the 14 years following the audit. Accounting for the potential effect of higher audit rates on tax compliance more broadly could substantially raise the projected revenues from audits, they say.

Growing inequality in top income bracket results from growing inequality within occupations 

The distribution of earnings among workers in the top 10% of the income distribution has become increasingly unequal over the past 40 years. Using labor market data from 1980 to 2014, Joshua Gottlieb of the University of Chicago and co-authors find that this largely reflects widening inequality within occupations, rather than between occupations. The authors argue that an increase in income inequality in one occupation can spill over to through consumption to other occupations that provide “non-divisible” services (such as physicians, dentists, and real estate agents.) In other words, the best physicians and real estate agents charge higher prices when income inequality rises, creating higher within-profession income inequality at the top. 

Occupation sorting explains differences in college wage premium by age

Using longitudinal surveys of U.S. workers, David J. Deming of Harvard finds that the college wage premium – how much more a college-educated worker makes than a similar non-college-educated worker – roughly doubles over a worker’s life cycle, from 27 percent at age 25 to 60 percent at age 55.