How government policies worsen the nation’s income and wealth disparities comes into sharp focus in a new government report on capital gains. The short story: Investing is gaining and work declining as sources of income. Capital gains come from selling assets such as stocks, real estate and businesses. Property owned for more than a year is taxed at lower rates than wages and in some cases is tax-free. Although capital gains are growing — an indication that national wealth is growing — far fewer capital gains are going to the vast majority, while those at the absolute top of the economy are enjoying vastly more. This trend, as well as other official data, suggests that wealth is piling up at the top and that a narrowing number of Americans are wealth holders.

Larger pie, smaller slice

These findings emerge from a new report by the Statistics of Income branch of the IRS that examined a large set of taxpayers over nine years. I have reanalyzed the data, adjusted for inflation, and then compared similar, but not identical, data for 2012, the year with the latest available numbers. To understand recent changes in capital gains, think of a pie made from the money received when stocks and other assets are sold for a profit. Call it a capital gains pie. Now imagine we set down the 1999 and 2007 capital gains pies side by side to see how they were sliced up and handed out to four Americans sitting at the dinner table, who represent four different income classes. The good news is that the 2007 pie is 40 percent larger than the 1999 pie. But it’s also important to consider the size of the various slices. The smallest slice from both pies goes to the vast majority of Americans, roughly the bottom 90 percent, whose total income in both years was less than $100,000. In 1999 they got 13.9 percent of the pie, but in 2007 just 5.3 percent. That was such a dramatic decrease that even though the pie was much larger in 2007, that year’s pie slice contained only slightly more than half the dollars of the 1999 slice, $91 million reduced to $49 million. In other words, the bottom 90 percent took a huge capital gains hit, despite the overall increase in wealth. Next are the slices going to the roughly one in eight Americans making between $100,000 and $1 million. Their slice shrank from 35.5 percent to 28.6 percent, but the dollars received grew by 13 percent, because the pie got bigger. Next come the small number of Americans, roughly one in 400, who made between $1 million and $10 million in both years. Their slice of pie also shrank, from just over 28 percent to just under 24 percent. But the total dollars in their slice went up by 17 percent. And what of the top group, the slightly more than 18,000 households with total income of $10 million or more in both years? Their slice doubled to more than 42 percent of the pie. And because the pie was also bigger, their cash from capital gains in 2007 was 2.6 times greater than in 1999.

We are not getting laws that support the vast majority of Americans because members of Congress must raise money from wealthy donors, who in return for their largesse want policies bent in their favor.

So in 1999 the already very rich made almost $146 billion from capital gains, but eight years later they made more than $388 billion. Wealth was already highly concentrated in America before the 2008 financial crisis, especially financial wealth — stocks, bonds, the cash value of life insurance policies and cash. The Great Recession was a disaster for those who were forced to sell assets due to unemployment, but a grand opportunity for those with the money to buy stocks and other assets at fire sale prices. Since Barack Obama took office five years ago the stock market has more than doubled, while average incomes have fallen.

The role of policy