Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006

Go to the following to get the links referred to.

http://www.offthechartsblog.org/the-latest-on-inequality/?utm_campaign=CBPPTwitter

As our colleague Jared Bernstein has discussed (here and here), an informative new Congressional Research Service (CRS) report analyzes the rise in income inequality between 1996 and 2006. Like other recent reports, CRS found that income growth at the top far outpaced growth elsewhere on the income ladder.

As Jared also explains, the CRS report finds:

The single biggest contributor to the growth of inequality during that period was the growth in capital gains and dividend income, which are highly concentrated at the top of the income scale.

The tax system did less to alleviate rising inequality in 2006 than it did a decade earlier.

The CRS study echoes findings by the Congressional Budget Office that income inequality has grown dramatically in the past three decades.

For more on income inequality, see our recent blog series. For more on why the tax system is doing less to counter rising inequality than it used to, click here.


http://taxprof.typepad.com/files/crs-1.pdf

Thomas L. Hungerford
Specialist in Public Finance
December 29, 2011

[...]

This report examines changes in income inequality among tax filers between 1996 and 2006. In particular, the role of changes in wages, capital income, and tax policy is investigated.

Inflation-adjusted average after-tax income grew by 25% between 1996 and 2006 (the last year for which individual income tax data is publicly available). This average increase, however, obscures a great deal of variation. The poorest 20% of tax filers experienced a 6% reduction in income while the top 0.1% of tax filers saw their income almost double. Tax filers in the middle of the income distribution experienced about a 10% increase in income. Also during this period, the proportion of income from capital increased for the top 0.1% from 64% to 70%.

[...]

While earnings inequality increased between 1996 and 2006, this was not the major source of increasing income inequality over this period. Capital gains and dividends were a larger share of total income in 2006 than in 1996 (especially for high-income taxpayers) and were more unequally distributed in 2006 than in 1996. Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality. Taxes were less progressive in 2006 than in 1996, and consequently, tax policy also contributed to the increase in income inequality between 1996 and 2006. But overall income inequality would likely have increased even in the absence of tax policy changes.

[...]

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