Occupy Time Machine: Income inequality now back to where it was 15 years ago

The Great Recession dramatically reduced U.S. income inequality, according to a new analysis from the Tax Foundation. In fact, income inequality—at least as measured by the income share of the top 1 percent of earners—is back to where it was in 1996-1997. A few observations based on the above chart:

1. Inequality surged during the 1990s when tax rates where raised. As the Tax Foundation notes, George H.W. Bush in 1991 raised the top marginal rate to 31 percent from 28 percent, and in 1993 Bill Clinton raised it further to 39.6 percent.

2. Yet there was no Occupy movement in the 1990s. Why not? Because incomes were rising across the board during that period. As the Economic Policy Institute notes, over the 1990s (1989-2000) real median income was up almost 10 percent, or about $5,200. And those numbers probably understate things given typical mismeasurements in inflation. So rather than worry about  inequality, we should worry about economic growth.

3. Blame the temporary rise in inequality during the 2000s on the business cycle, not the Bush tax cuts. Here’s the Tax Foundation:

… income inequality has fluctuated considerably since 2000 but is now at about the level it was in 1997. Thus, the Bush-era tax cuts (which had provisions benefitting both high- and low-income taxpayers) did not lead to increased income inequality. By contrast, inequality rose 12 percent between 1993 and 2000, following two tax rate increases on high-income earners. Thus, changes in inequality over the last two decades appear to be driven more by the business cycle than by tax policy.