While our measure is plausibly the best currently available for imputing yearly-accrued capital gains on investments, we acknowledge that the lack of available data on capital gains accruals limits its precision. Most importantly, when imputing yearly-accrued capital gains we assume that all investments receive the ordinary rate of return. Hence we will not capture extranormal returns received by some individuals on their investments. This may be of particular concern for private equity investors who generate larger returns on investments through
purchasing entire companies and reforming their production process or business model. Our yearly-accrued capital gains measure will understate extra-normal returns on such investments. However, this will only impact our trends in top income shares to the extent that the frequency or the size of these investments changes over time.
In addition to imputing capital gains from investments, we impute capital gains on
primary housing to reflect gains in wealth resulting from real estate holdings. Since only homeowners can obtain housing capital gains, we use the same matching technique for homeowners in the CPS to homeowners in the SCF to obtain an estimate of house values by income percentile. We then impute housing capital gains as the growth in the House Price Index of the Federal Housing Finance Agency (FHFA) times the estimated home value.10 Importantly, since the SCF does not include state or locality information, we base all of our housing capital gains on national estimates of home values and home price appreciation. Hence we miss the substantial importance of local housing markets. Nevertheless, in the absence of local identifiers this is the best available information for imputing housing capital gains. It is similar to the method Smeeding and Thompson (2010) use to impute accrued housing capital gains.