Income Inequality in America: Conclusions from 100 years of income tax data and cross-country comparisons

In 1913, taxation of income was permanently introduced in the United States. Other similarly developed countries soon followed suit. From there, income inequality in the United States dropped significantly, and the decline in Europe was even more dramatic. First, this paper considers the changes over time of the share of national income gained by the top 1% of income earners in seven countries going back to World War Two. A second analysis considers the impact that tax policy may have had on the share of income accruing to the top 1% of U.S. income earners between 1980 and 2014, a period that begins just before the largest tax cut in US history and saw major increases in income inequality in the US. The first analysis shows that income inequality began to rise in some countries in the last two decades of the twentieth century, notably the United States, United Kingdom and Australia. However, this wasn’t the case in other countries, including France, Japan and the Netherlands. We also look at Norway, which has experienced a more unique path. The second analysis shows mixed findings for the impact of income tax policy and its progressivity on income inequality in the U.S. from 1980 and 2014.