WED JAN 04, 2012 AT 07:30 PM PST
What increased income inequality the most, 1996-2006: Capital gains? Bush tax cuts? Wages?
The Congressional Research Service has released a report on income inequality between 1996 and 2006. While the middle 20 percent of people saw their average after-tax income grow from $35,255 to $39,301, the bottom 20 percent lost ground, going from an average of $9,016 to $8,461. The top 0.1 percent, meanwhile? Their average income nearly doubled, from $2,876,482 to $5,651,740. But more interesting than the growth of inequality are the causes (PDF):
Changes in income from capital gains and dividends were the single largest contributor to rising income inequality between 1996 and 2006. Changes in tax policy also made a significant contribution to the increase in income inequality, but even in the absence of tax policy changes income inequality would likely have increased. Although earning inequality increased between 1996 and 2006, changes in wages and salaries appear to have had little effect on the increase in overall income inequality.
In other words, the growth of income inequality isn't mostly about what people are actually earning through their work. Wages and salaries did get more unequal, but that inequality was dwarfed by two other factors: the increase in the share of overall income coming from capital gains and dividends—income that's highly concentrated at the top—and the Bush tax cuts, which were so overwhelmingly aimed at the very richest people. Jared Bernstein writes that:
I think a lot of people sense that there’s something unsettling about this shift from labor income to capital incomes. It seems endemic of a society that devalues work while providing outsized rewards for speculation and asset accumulation. The CRS findings place that sensibility in the context of hard data.
And the Republican presidential frontrunner (still, even after the Santorum surge) is Mitt Romney, practically the poster child for this system.