While cross-sectional data show increasing income inequality in the United States, it is also important to examine how incomes change over time. Using income tax data, this paper provides new evidence on long-term and intergenerational mobility, and persistence at the top of the income distribution. Half of those aged 35-40 in the top or bottom quintile in 1987 remain there in 2007; the others have moved up or down. While 30 percent of dependents aged 15-18 from bottom quintile households are themselves in the bottom quintile after 20 years, most have moved up. Persistence is lower in the highest income groups.

Research on the distribution of income during the 1980s has identified a trend towards increasing inequality, which may be the continuation and acceleration of trends spanning several decades. This paper explores to what extent behavioral responses to the tax changes during the 1980s may also explain the rising inequality. The 1986 Tax Reform Act is used as a natural experiment to explore the roles played by both taxes and a variety of nontax factors. Our principal finding is that both tax rates and nontax factors appear to have had significant effects on relative income growth during the late 1980s.

Concerns about income inequality emphasize the importance of accurate income measures. Estimates of top income shares based only on individual tax returns are biased by tax-base changes, social changes, and missing income sources. This paper addresses these shortcomings and presents new estimates of the distribution of national income since 1960. Our analysis of pretax income shows that top income shares are lower and have increased less since 1980 than other studies using tax data. In addition, increasing government transfers and tax progressivity have resulted in rising real incomes for all income groups and little change in aftertax top income shares.

Recent empirical work on captial gains implies that realizations are highly sensitive to marginal tax rates. Because they are based on cross-section data, however, these estimates cannot distinguish between permanent responses to tax rate changes and the timing of realizations to take advantage of the normal fluctuations in any individual's tax rates over time. The purpose of this paper is to distinguish transitory from permanent tax effects by analyzing panel data for taxpayers. Controlling for permanent and transitory income and other variables, the estimates suggest both transitory and permanent effects, although the permanent tax rate effect is not significant in all cases.

Charitable Giving, Income, and Taxes: An Analysis of Panel Data by Gerald E. Auten, Holger Sieg and Charles T. Clotfelter. Published in volume 92, issue 1, pages 371-382 of American Economic Review, March 2002

Use of Internal Revenue Service (IRS) tax records improves researchers’ ability to track income trends, although the focus on taxable market income in this research excludes important income sources. Using IRS data in combination with other data sources, we explore the effect of measuring inequality levels and trends with income, including real accrued capital gains based on Haig-Simons principles. While median market income fell 10% from 1989 to 2016, median economic income increased by 26% using our Haig-Simons-based measure. Top 1% income shares were lower and increased by only about one-third of that estimated using previous approaches over this period.