Rising Income Inequality and the Role of Shifting Market-Income Distribution, Tax Burdens, and Tax Rates, by Andrew Fieldhouse | June 14, 2013

• “Income inequality in the United States—already well above that experienced in other advanced economies—has surpassed Gilded Age levels, and the Great Recession and ongoing jobs crisis will exacerbate this trend until full employment is restored (Bivens, Fieldhouse, and Shierholz 2013). While market forces are the primary driver of rising inequality, recent economic research suggests that tax policy has contributed as well, both by exacerbating after-tax income inequality since the late 1970s and by spurring a shift of pretax income toward high-income households. To be sure, government policy has surely contributed to inequality growth through other, more hard to quantify channels: policies related to labor protections, collective bargaining, minimum wage erosion, and trade—or lack thereof, what political scientists Jacob Hacker and Paul Pierson refer to as “political drift” This paper reviews empirical trends in pre- and post-tax income inequality since 1979 and summarizes recent empirical and theoretical research on the role of tax policy in exacerbating market-based income inequality. It finds that increasing top marginal tax rates could yield potentially large results in slowing the growth of income inequality…”