Income inequality in the United States

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Income inequality has fluctuated considerably in the United States since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a 30-year period of relatively lower inequality between 1950 and 1980.

The U.S. has the highest level of income inequality among its (post-)industrialized peers.^[1] When measured for all households, U.S. income inequality is comparable to other developed countries before taxes and transfers, but is among the highest after taxes and transfers, meaning the U.S. shifts relatively less income from higher income households to lower income households. In 2016, average market income was $15,600 for the lowest quintile and $280,300 for the highest quintile. The degree of inequality accelerated within the top quintile, with the top 1% at $1.8 million, approximately 30 times the $59,300 income of the middle quintile.^[2]

The economic and political impacts of inequality may include slower GDP growth, reduced income mobility, higher poverty rates, greater usage of household debt leading to increased risk of financial crises, and political polarization.^[3][4] Causes of inequality may include executive compensation increasing relative to the average worker, financialization, greater industry concentration, lower unionization rates, lower effective tax rates on higher incomes, and technology changes that reward higher educational attainment.^[5]

Measurement is debated, as inequality measures vary significantly, for example, across datasets^[6][7] or whether the measurement is taken based on cash compensation (market income) or after taxes and transfer payments. The Gini coefficient is a widely accepted statistic that applies comparisons across jurisdictions, with a zero indicating perfect equality and 1 indicating maximum inequality. Further, various public and private data sets measure those incomes, e.g., from the Congressional Budget Office (CBO),^[2] the Internal Revenue Service, and Census.^[8] According to the Census Bureau, income inequality reached then record levels in 2018, with a Gini of 0.485,^[9] Since then the Census Bureau have given values of 0.488 in 2020 and 0.494 in 2021, per pre-tax money income.^[10]

U.S. tax and transfer policies are progressive and therefore reduce effective income inequality, as rates of tax generally increase as taxable income increases. As a group, the lowest earning workers, especially those with dependents, pay no income taxes and may actually receive a small subsidy from the federal government (from child credits and the Earned Income Tax Credit).^[11] The 2016 U.S. Gini coefficient was .59 based on market income, but was reduced to .42 after taxes and transfers, according to Congressional Budget Office (CBO) figures. The top 1% share of market income rose from 9.6% in 1979 to a peak of 20.7% in 2007, before falling to 17.5% by 2016. After taxes and transfers, these figures were 7.4%, 16.6%, and 12.5%, respectively.^[2]