Capital Gains and Income Inequality in the United States

Awarded Scholars:
Joel Slemrod, University of Michigan
Project Date:
Jan 2016
Award Amount:
Project Programs:
Social, Political, and Economic Inequality

The rich make money in many ways, including receiving a sizeable portion of income from capital gains. While the extent and growth of income inequality has received much attention recently, much less attention has been paid to exploring the role played by capital gains in these phenomena. Previous research finds that the share of income received by the top 1 percent, 0.1 percent, and 0.01 percent has increased sharply since 1975 and that the composition of income at the very top has changed considerably. How much of this can be attributed to capital gains?

Economist Joel Slemrod will examine several important aspects of capital gains overlooked by previous research on economic inequality. These include the timing of taxable capital gains realizations and other income; changes in the tax incentives for realizations; gains from non-qualified stock options; capital gains from passive versus active investments; and the changing technology of capital gains. He will clarify and extend recent research using tax-return data to better understand the level, growth, and nature of inequality, in particular the rising share of income received by the highest stratum of society.


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