Growing Income Inequality Examined by CRS

01.02.12 | 1 min read | Text by Steven Aftergood

The inequality of income among American taxpayers has grown markedly in recent years, the Congressional Research Service confirmed in a new study of U.S. tax records.

Even as total income grew between 1996 and 2006 (the last year for which individual tax data are available), many Americans were losing ground.

“Inflation-adjusted income actually fell for those in the bottom income quintile (the poorest 20% of tax filers) and almost doubled for the richest 0.1% of tax filers,” the CRS found. “Consequently, income inequality increased between 1996 and 2006.”

The CRS report identified multiple contributors to the growing inequality, including disparate changes in salaries, growth in capital income among high-income taxpayers and modifications of tax policy which exacerbated existing inequalities.

“Earnings inequality has been increasing over the past three decades, and the share of income from capital has increased for high-income tax filers. Furthermore, the 2001 and 2003 Bush tax cuts, while reducing taxes for almost all tax filers, reduced taxes for high-income tax filers to a greater extent than for lower-income tax filers.”

Of these, “Changes in capital gains and dividends were the largest contributor to the increase in the overall income inequality,” the CRS report said. See “Changes in the Distribution of Income Among Tax Filers Between 1996 and 2006: The Role of Labor Income, Capital Income, and Tax Policy,” December 29, 2011.