Data on Income Inequality

The best description of the data on the degree of income inequality in the United States comes from the book by Alan Reynolds, Income an Wealth (Greenwood Press, 2006).  He takes a careful look at the data and concludes that the percent of income claimed by the top 1% earners in the United States has not increased since 1988 but has decreased.  His columns in the Wall Street Journal of February 6, 2007 and Dec. 16, 2006 explain why popular studies on which the press bases its claims on increasing income inequality are flawed.  The core of his claim is that raw income tax data is misleading and once one adds in various other assumptions to make the data more usable, the assumptions are critical and often loony.  The Congressional Budget Office study for example, added an assumed percentage of capital ownership to the top 1%, and the assumed percentage itself increases with time, leading, naturally to an increase in the income of the top 1%'s income.  The CBO study also shows, for example, that raw disposable income of the top 1% did not increase from 1988 to 2003 (the 2004 data reflects a new lower tax on capital gains).  Many simply want to believe that the rich are getting richer, it is a convenient political argument; but a careful dissection of the data shows, at minimum, that the position is contested.