Has U.S. Income Inequality Really Increased?

Abstract

In recent years, both academics and public commentators have alleged that is increasing in the United States. These commentators typically cite federal income tax return data to support their claims. However, studies based on tax return data provide highly misleading comparisons of changes to the U.S. income distribution because of dramatic changes in tax rules and tax reporting in recent decades. This study attempts to correct for the distortions of using tax data to determine income distribution characteristics. It finds that, aside from stock option windfalls during the late-1990s stock-market boom, there is little evidence of a significant or sustained increase in the inequality of U.S. incomes, wages, consumption, or wealth over the past 20 years.