Income inequality in the US continues to rise, according to a recent report from the Congressional Budget Office. The report, which presents data from 2014, finds that average income among households in the lowest fifth of the income distribution was $19,000, while income for households in the highest fifth averaged $281,000. Below is background on the trends in income inequality since 1979, as well as an explanation of how government policies can affect those trends.
In 2014, the top 1 percent of households accounted for four times as much income as the bottom 20 percent of households.
Between 1979 and 2014, income grew by approximately 60 percent. However, that growth wasn’t shared equally—average incomes in the highest quintile (one-fifth of the population) were 95 percent higher in 2014 than they were in 1979, while average incomes in the other quintiles only grew by around 30 percent. Those statistics do not account for the effect of taxes or programs such as Medicaid, the Children’s Health Insurance Program, and the Supplemental Nutrition Assistance Program; such programs provide cash payments or other forms of assistance to people with relatively low income or few assets.
When the tax code and transfer programs are taken into account, income growth is still unequal, but is more evenly distributed among Americans. In the case of the lowest quintile, the incorporation of taxes and transfers shows that income growth over the 36 year period was 69 percent (rather than 26 percent without those factors incorporated).
Federal taxes are generally progressive, which means that higher income households pay a larger share of their income than lower income households. After taxes, income inequality remains, but the disparity among groups is reduced.
Since 1979, benefits from transfer programs have increased as a share of income accrued by middle and low income households; for the lowest income quintile, transfers as a percentage of average income doubled to 64 percent from 1979 to 2014.
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