Study: GOP’s Capital Gains Tax Cut Is The Biggest Driver Of Income Inequality

The lowering of the capital gains tax, pushed through as part of the Bush tax cut package of 2003, was the biggest driver of income inequality from 1996 to 2006, according to a recent report from the Congressional Research Service. While the Bush tax cuts as a whole contributed to rising inequality, it was the change in policy toward capital gains — which were once taxed at normal income rates but are now taxed at 15 percent for the rich — that played the largest role in exploding the income gap. While after-tax income increased by an average of 25 percent for Americans as a whole, lower earners saw a much smaller increase and the top 0.1 percent’s income, driven by lower capital gains tax rates, nearly doubled, as shown in this chart from Jared Bernstein: