From the Center on Budget and Policy Priorities :
Rich-Poor Gap Tripled Between 1979 and 2006
By Arloc Sherman
17 Apr, 2009
New data from the Congressional Budget Office (CBO) show that in 2006, the top 1 percent of households had a larger share of the nation's after-tax income, and the middle and bottom fifths of households had smaller shares, than in any year since 1979, the first year the CBO data cover. As a result, the gaps in after-tax incomes between households in the top 1 percent and those in the middle and bottom fifths were the widest on record.
The data reveal starkly uneven income growth over recent decades. Between 1979 and 2006, real after-tax incomes rose by 256 percent — or $863,000 — for the top 1 percent of households, compared to 21 percent — or $9,200 — for households in the middle fifth of households and 11 percent — or $1,600 — for households in the bottom fifth. (See Figure 1, next page.) In 2006, the average household in the top 1 percent had an income of $1.2 million, up $63,000 just from the prior year; this $63,000 gain is nearly two times the total income of the average middle-income household. [1]
In addition, the share of national after-tax income going to the top 1 percent of households more than doubled between 1979 and 2006, rising from 7.5 percent to 16.3 percent.
Taken together with prior research, the new data suggest greater income concentration at the top than at any time since 1929. [2] The data precede the current recession, which is likely to reduce the income of the wealthiest Americans substantially, given the decline in the stock market, and thereby shrink somewhat the income gap between rich and poor households. But there was a similar development when the dot.com bubble burst a few years ago — income at the top of the income scale fell sharply — and it turned out to be just a speed bump. Incomes at the top more than made up the lost ground from 2004 to 2006.
Changes in Inequality Since 1979
The gap in income between the wealthiest Americans and all others has grown strikingly in recent decades, the CBO data show. In 1979, when the data begin, the average after-tax incomes of the top 1 percent of households were 7.9 times higher than those of the middle fifth of households. By 1989 they were 13.5 times higher.
Top incomes continued climbing in the 1990s, to 20.6 times higher than the middle fifth of households in 2000 and 21.3 times higher in 2005. By 2006, top incomes were 23.0 times higher than those of the middle fifth — nearly tripling the income gap between the top 1 percent and those in the middle since 1979.
The gap between the top 1 percent and the poorest fifth of Americans widened even more dramatically over this same period. In 1979, the incomes of the top 1 percent were 22.6 times higher than those of the bottom fifth. Top incomes continued climbing to 63.1 times higher in 2000 and 72.7 times higher by 2006 — more than tripling the rich-poor gap in 27 years.
The CBO data also show that between 1979 and 2006:
* The average after-tax income of the top 1 percent of the population more than tripled, from $337,000 to over $1.2 million. As noted, this represented an increase of $863,000, or 256 percent.
* By contrast, the average after-tax income of the middle fifth of the population rose from $42,900 in 1979 to $52,100 in 2006 — a relatively modest gain of $9,200 or 21 percent over a 27-year period.
* The average after-tax income of the poorest fifth of the population rose only from $14,900 to $16,500, an increase of $1,600 or 11 percent. [3]
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