Investment Income Responsible For Large Part of US Income Inequality: CBO Study

From "Trends in the Distribution of Household Income Between 1979 and 2007" CBO Study, October 2011:

The other factor leading to an increased concentration of market income was a shift in the composition of that income. Labor income has been more evenly distributed than capital and business income, and both capital income and business income have been more evenly distributed than capital gains. Between 1979 and 2007, the share of income coming from capital gains and business income increased, while the share coming from labor income and capital income decreased.

Those two factors were responsible in varying degrees for the increase in income concentration over different portions of the 1979–2007 period.

In other words, to have income equality in the US, you either have to stop investment, business formations and entrepreneurship, and make people rely on labor income, or you have to take away the gains and monetary incentives of investors and entrepreneurs after they are successful. While not all entrepreneurs are monetarily motivated, many of their backers and investors are and would not put up the cash if there was not a positive return with a large upside.

Income equality breeds a lack of economic growth, risk taking, entrepreneurship and business formation. Is it better to be economically and materially well off, but less so than the very rich, in an income unequal society, or is it better to be less well off, to have less, in an income equal society? I would choose the former every time. Let me have a roof over my head, food to eat and conveniences, liked almost all Americans, such as air-conditioning, cell phone, computer, large screen LCD TV, etc. and who cares if others have more.

Income inequality promotes growth through the incentive that anyone can achieve success and become rich, especially in the US. Income equality removes hope and motivation for a better life and will lead to political instability, as a change of control of government will be the only way to improve one's well-being, such as in Egypt.

Trends in the Distribution of Household Income Between 1979 and 2007: CBO Study