December 8, 2011
Realized income is a widely accepted measure of well-being. This paper examines the relationship between realized income and wealth and economic income, using a national sample of income tax returns matched with estate tax returns to compare the realized property income of individuals with the with the associated amount of wealth that generates that income. The study demonstrates that with respect to those who hold a significant amount of wealth, realized income is an extremely poor measure of well-being. This leads to inequity in tax and welfare programs. Finally, this study illustrates the usefulness of estate-income collation in studying wealth-income relationships.