5 Facts About Rising Income Inequality in the United States
Income inequality in the United States continues to rise, according to a new report from the Congressional Budget Office that utilizes data through 2022. Below are five facts about not only changes in income inequality over the past 40 years but also the influence of government policies on those trends.
1. Household income in the United States is unevenly distributed.
In 2022, average income before taxes and transfers among households in the lowest quintile (one-fifth of the population) was $26,200 and $412,600 for the highest quintile. As a share of total U.S. household income, the top 1 percent of households hold approximately five times the amount of pre-tax household income than the bottom 20 percent of households.
2. The concentration of income toward high earners has become more pronounced since 1982.
Over the past four decades, average household income grew by 88 percent after adjusting for inflation; however, that growth largely stems from earners in the top part of the income distribution. Average income in the highest quintile was 144 percent higher in 2022 than it was in 1982. Meanwhile, income for the middle and lowest quintiles grew 48 percent and 57 percent, respectively. Those statistics do not account for the effect of taxes or transfer programs such as Medicaid, the Children’s Health Insurance Program (CHIP), and the Supplemental Nutrition Assistance Program (SNAP); such programs provide cash payments or other forms of assistance to people with relatively low incomes or few assets.
3. Income is more evenly distributed once taxes and transfers are taken into account.
When the tax code and transfer programs are taken into account, income growth is still unequal, but the gap between higher earners and lower earners narrows. For the lowest quintile, the incorporation of taxes and transfers show that income growth from 1982 to 2022 was 105 percent, rather than 57 percent without those factors incorporated.
4. The progressive tax code plays an important role in reducing income inequality.
Federal income taxes are generally progressive, which means that higher-income households pay a greater share of taxes and face a higher tax rate than lower-income households do. In 2022, the highest quintile had an average federal tax rate of 25.9 percent compared to an average rate of 1.4 percent for the lowest quintile. After taxes, income inequality remains, but the disparity among groups is reduced.
5. Means-tested transfer programs benefit lower-income households.
Means-tested programs like Medicaid, CHIP, SNAP, and Supplemental Security Income support individuals and households with the greatest financial means; therefore, lower-income households claim a greater share of those benefits. Lower-income households claim approximately half of all the benefits from means-tested programs, but that share is down approximately 30 percentage points compared to 40 years ago. Average means-tested transfer rates (the percentage of the group’s average income before transfers and taxes) fell in 2022 for all income groups, but especially for households in the lowest quintile (18 percent). That can be explained by the end of the temporary expansion of unemployment compensation during the COVID-19 pandemic. Overall, Medicaid and CHIP account for the most benefits across all quintiles.
Income inequality remains and has risen noticeably over the past few decades. While taxes and transfers decrease the income discrepancy between low- and high-income households, they do not close the gap. The unshared benefits of a developing economy have negative implications, such as poverty levels differing by race, ethnicity, and sex. Understanding not only the over time but also federal policy’s influence on that trend is essential to building a more inclusive and robust economy for the future.
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