When estimating income inequality with tax data, accounting for missing income presents many challenges. Researchers have adopted different approaches to address these challenges. Saez and Zucman (2020) discuss differences between the national income distributions of Piketty, Saez, and Zucman (PSZ, 2018) and Auten and Splinter (AS, 2019a). Saez and Zucman also make updates to their estimates for retirement income, partially responding to one of the concerns raised in AS. In this reply, I explain that SZ only partly correct this problem and do not address other issues raised by AS. For the allocation of underreported income—the most consequential difference between AS and PSZ—I show that the AS approach conforms with special audit studies in five ways, while the PSZ approach is inconsistent with them. I also provide historical background on the two projects, respond to technical points raised, and discuss estimates of tax progressivity.
Here is the link to the paper.