Growth of Inequality in US

The Congressional Budget Office produced an in depth study into inequality in the US. They concluded inequality has widened in the US in the past three decades. In particular, the biggest growth in income has come from the top 1% of the population. See full report at: Trends in US income inequality (CBO)

Summary of Report

CBO finds that, between 1979 and 2007, income grew by:

  • 275 percent for the top 1 percent of households,
  • 65 percent for the next 19 percent,
  • Just under 40 percent for the next 60 percent, and
  • 18 percent for the bottom 20 percent.

Top 1% see biggest growth in share of National Income

Inequality in US

inequality-us

 

inequality trends in US

Top 1% gained increased share of income, bottom 80% saw marked fall.

 

Growth in Real After Tax Income in US

growth us inequality
Growth in US inequality
  • The poorest 20 percent of households made an average of $11,034 last year, $179 less than they did in 1979.
  • The median income rose to $49,445 last year from $46,074 in 1979
  • The top 20 percent made an average $169,633, or $48,536 more than in 1979.
  • Myth of income equality

Shares of Market Income

Shares of Market Income

 

There are different ways of interpreting these dats. On the one hand you could point to the fact average real incomes increased by 62% during this period. That represents a significant improvement in living standards for the average American.

The problem is that the average American has not benefitted by as much as the richest 1%.

A key point of trickle down economics was that if there was an improvement in incomes for the richest, this would ‘trickle down’ to the poorer sections of society. However, it is debatable whether this has occurred at all.

One argument is that income inequality is necessary to provide sufficient incentives to create employment and growth. However, if this is the case, why did the US experience higher growth, lower unemployment in the  1960s and 1970s when income inequality was lower ( and tax rates on the rich higher)

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