The biggest driver of income inequality: capital gains

at 11:09 AM ET, 01/02/2012

A new report from the Congressional Research Service — the nonpartisan public policy branch of Congress — takes a closer look at the drivers of income inequality between 1996 and 2006, the last period of moderate economic growth before the latest boom-bust cycle.

The report explains that the Bush tax cuts contributed significantly to growing inequality but concludes that income from capital gains and dividends — investments in stocks, bonds, real estate and other assets — mattered even more:
(GETTY IMAGES )

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.

Democrats like President Obama have proposed raising the capital gains tax — which was lowered under Bush — partly out of interest in bridging this divide. Many conservatives, by contrast, believe that capital gains are taxed too much, arguing that it’s income that can be double-taxed under corporate and individual income taxes. All the major Republican presidential candidates but Romney and Santorum want to eliminate the capital gains tax entirely.

(h/t Jared Bernstein)

Related stories:

Rich pull away from the rest of America

Growing wealth widens distance between lawmakers, constituents

Where all the CEOs are above average

Capital gains tax policy feeds gap between rich, poor

 
Read what others are saying

    Most Read: Business

    DJIA
    0.53%
    S&P 500
    0.43%
    NASDAQ
    0.62%
     Last Update: 01:22 PM 09/18/2014

    World Markets from      

     

    Other Market Data from      

     

    Key Rates from