Economic Snapshot | Economic Growth

New evidence of extraordinary growth in income inequality

Snapshot for September 3, 2003.

New evidence of extraordinary growth in income inequality

The Congressional Budget Office (CBO) recently released new information on the income growth for each income category over the period from 1979 to 2000. The new CBO data show rapid income growth among the highest-income households, with less growth among low- and middle-income households. The CBO data are more comprehensive than the Census Bureau income data because the CBO income measure includes realized capital gains and the value of near-cash benefits such as food stamps. The CBO also estimates tax liabilities so the data can be used to identify the growth of both pre-tax and after-tax incomes.

Growth in real household pre-tax and after-tax income, 1979-2000

The figure shows that the highest-income households enjoyed the fastest inflation-adjusted income growth over the past two decades and that income inequality therefore increased greatly from 1979 to 2000. For instance, the pre-tax income of the top 1% of households grew by 184% over the 21 years measured, and the after-tax income of this group tripled to $863,000 in 2000.

In contrast, middle-income households saw pre-tax income grow by only 12.5% and after-tax income grow by 15.1%, less than 1% per year. The lowest fifth of households gained even less income, 6.6% pre-tax and 8.7% after-tax, over the 1979 to 2000 period. This uneven income growth is reflected in the fact that the ratio of incomes in the upper 1% to that of the lowest fifth nearly tripled, rising from 22.7 in 1979 to 63.0 in 2000.

Today’s snapshot was written by EPI economist  Jared Bernstein and EPI President  Larry Mishel, with research assistance by Yulia Fungard.

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