IRS: Income Inequality Went Down in 2011

December 19, 2013

President Obama recently gave a long speech about inequality, claiming that income inequality is on the rise:

But this increasing inequality is most pronounced in our country, and it challenges the very essence of who we are as a people.

However, the latest data from the IRS, summarized here, does not support this claim. The chart below indicates that the share of income accruing to the top 1 percent of earners, and the top 0.1 percent of earners, went down slightly in 2011. This despite an economic recovery that has been most evident in a booming stock market. Further, these top shares of income remain below the average for the last 10 years, and much lower than they were from 2005 to 2007.

Now, this doesn’t mean income inequality will never go up again, but it does mean it has taken a pause lately, at least over the last 10 years. Also, part of the 2011 drop in the top income shares is the result of taxes. The Bush tax cuts were set to expire at the end of 2010, so many high-income earners shifted income into that year in anticipation of higher taxes in 2011. The Bush tax cuts were extended for two years and then finally ended for high-income earners this year, so next year’s release of 2012 data may well show a boost of income for high-income earners and then another drop in 2013. Preliminary data does seem to point in that direction. That means 2013 income shares could be above or below average. There is simply no discernible trend.

The hard data indicates there has been no appreciable increase in income inequality since 2001. Other reputable studies, some of which are reviewed here, indicate income inequality has not increased since the 1980s.

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