

It's “the defining challenge of our time,” says President Barack Obama, who will spotlight the issue in his State of the Union address Tuesday night. A Gallup poll finds two-thirds of Americans are unhappy with the nation's distribution of wealth. Experts say it may be slowing the economy.

Why has the issue suddenly galvanized attention? Here are questions and answers about the wealth gap — what it is and why it matters.


A. No. By most measures, it's worsened in the past seven years. President Barack Obama managed last year to restore higher tax rates on incomes above $398,350. And he's pushed other steps that might narrow the gap slightly, such as a higher minimum wage. But congressional Republicans have resisted most such measures.

Q. Hasn't there always been a wide gulf between the richest people and the poorest?

A. Yes. What's new is the widening gap between the wealthiest and everyone else. Three decades ago, Americans' income tended to grow at roughly similar rates, no matter how much you made. But since roughly 1980, income has grown most for the top earners. For the poorest 20 percent of families, it's dropped.

Q. So who are the top 1 percent in income?


Q. Where do the 1 percent live? 

A. Investor Warren Buffett famously lives in Omaha, Neb. Les Wexner, whose fashion empire includes Victoria's Secret, is an Ohioan. But the wealthy mainly cluster around the largest cities. Of the 515 U.S. billionaires, 96 live around New York City, according to the intelligence firm Wealth-X. Los Angeles is home to 22, Chicago 21, San Francisco 20, Houston 14.

Maryland has the highest concentration of millionaires with 7.7 percent of its residents having $1 million or more in financial assets. New Jersey, Connecticut, Hawaii and Alaska have the next-highest concentrations, according to a report from Phoenix Marketing International.


A. Most economists say some inequality is needed to reward hard work, talent and innovation. But a wealth gap that's too wide is usually unhealthy. It can slow economic growth, in part because richer Americans save more of their income than do others. Pay concentrated at the top is less likely to be spent.

It can also trigger reckless borrowing. Before the 2008 financial crisis, middle class households struggled to keep up their spending even as their pay stagnated. To do so, they piled up debt. The Great Depression and the Great Recession were both preceded by surging income gaps and heedless borrowing by middle class Americans.


A. The evidence is mixed. Countries that have more equal income distributions, such as Sweden and other Scandinavian countries, tend to enjoy more social mobility. But a study released last week found that the United States isn't any less mobile than it was in the 1970s. A child born in the poorest 20 percent of families in 1986 had a 9 percent chance of reaching the top 20 percent as an adult, the study found — roughly the same odds as in 1971.

Other research has shown that the United States isn't as socially mobile as once thought. In a study of 22 countries, economist Miles Corak of the University of Ottawa found that the United States ranked 15th in social mobility.

Q. So why has income inequality worsened?

A. There's no simple answer. Globalization has created “superstars” and concentrated pay among corporate executives, Wall Street traders, popular entertainers and other financial elite. At the same time, factory workers now compete with 3 billion people in China, India, eastern Europe and elsewhere who weren't working for multinational corporations 20 years ago. These trends have contributed to a “hollowed out” labor market, with more jobs at the higher and lower ends of the pay scale and fewer in the middle.

Q. So what is the best way to shrink the wealth gap?



Read more questions and answers about the wealth gap.