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Zucman’s Statistical Sleight of Hand

Summary:
While researching my recent article “The Assault on Wealth,” I found something interesting from University of California, Berkeley economics professor Gabriel Zucman that I didn’t have room for in my 2,000 word article. Zucman had tweeted that the 20 richest individuals in America donated 0.8 percent of their wealth in 2018. That compares to 0.33 percent of wealth for Americans who itemized. So kind of impressive on the part of the wealthy, right? Wrong, says Zucman, because if you take away the two biggest givers, Bill Gates and Warren Buffett, the percentage falls to 0.3 percent. (Actually, it falls to 0.315 percent, but he’s rounding to one decimal place for them but not for Americans who itemize.) So that’s below the number for Americans who itemize. There’s

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While researching my recent article “The Assault on Wealth,” I found something interesting from University of California, Berkeley economics professor Gabriel Zucman that I didn’t have room for in my 2,000 word article.

Zucman had tweeted that the 20 richest individuals in America donated 0.8 percent of their wealth in 2018. That compares to 0.33 percent of wealth for Americans who itemized. So kind of impressive on the part of the wealthy, right?

Wrong, says Zucman, because if you take away the two biggest givers, Bill Gates and Warren Buffett, the percentage falls to 0.3 percent. (Actually, it falls to 0.315 percent, but he’s rounding to one decimal place for them but not for Americans who itemize.) So that’s below the number for Americans who itemize.

There’s something to the methodology; we often throw out outliers. But typically we throw out outliers on both ends. So to be consistent, Zucman should have thrown out the 2 smallest givers. There was a tie between 3: Larry Ellison, Larry Page, and Sergey Brin. Each gave $25 million, which, as a percent of their wealth, was 0.0 percent. So to bias it in favor of Zucman’s point, let’s throw out the two of those three who had the least wealth: Page and Brin. [Ellison was only slightly wealthier, and so it really doesn’t matter which 2 we use.]

Then we get a different result. The total wealth of the 16 rich people is $780.9 billion and the total giving is $2.748 billion. That means that throwing out the outliers leads to the conclusion that they gave 0.35 percent of their wealth, which is above, not below, the percent for Americans who itemize.

So Zucman uses a statistical sleight of hand to make his point. Not good.

Moreover, there’s a huge economic problem with his data. He compares charitable giving for itemizers in 2017 with charitable giving by the wealthy in 2018. What’s wrong with that? Four words: the 2017 tax reform. One of the major reforms was to raise the standard deduction substantially, which caused many people who had been itemizers not to itemize. Many of them, I suspect, did what I did. In December 2017, knowing that the bill had become a law, I looked at every charity I typically donated to near the end of the year and roughly doubled my donation for the year so that I could get the full charitable deduction one last time. To the extent that many people did that, the 0.33 percent for us substantially overstates the “steady state” charitable giving. Which means that the wealthy’s contributions, as a percent of wealth, are substantially higher than ours.

By the way, I’m taking as given that higher donations are better. I’m not sure they are, especially for the wealthy. I’m glad that Gates is taking his wealth and helping poor people in Africa. That’s wonderful. He and his wife, Melinda, are impressive people. But am I glad that some of the others are taking wealth out of productive activities and donating it to universities that name buildings after them? I am not.

David Henderson
David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

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