In the past several decades, income inequality in the United States has increased dramatically. Over the same period, year-to-year variation in individual incomes—or income volatility—has increased more modestly, while Americans’ economic mobility—movements up or down the economic ladder—has changed little.
Inequality and equality can take many forms: equality of opportunity is desirable, but equality of outcomes (like money income) might not be, if the inequality motivates entrepreneurial activity and hard work that benefit society as a whole. Some advocate focusing not on income inequality but on poverty.
On the other hand, the greatest increases in inequality have come at the top, with implications for policy and politics, as most of the country’s resources are concentrated in fewer hands. Tax policy, asset-building policy, and policies directly affecting low-income working families are among the most salient levers.
Post-War Growth in U.S. Income Inequality
Related Policy Centers and Projects
Downward Mobility from the Middle Class: Waking Up from the American Dream (Research Report)
A middle-class upbringing does not guarantee the same status over the course of a lifetime. A third of Americans raised in the middle class (between the 30th and 70th percentiles of the income distribution) fall out of the middle as adults. Marital status, education, test scores and drug use have a strong influence on whether a middle-class child loses economic ground as an adult. Race is a factor only for men. There is a gender gap in downward mobility from the middle, but it is driven entirely by a disparity between white men and white women.
A Detailed Picture of Intergenerational Transmission of Human Capital (Research Report)
Using data from the Health and Retirement Study, we consider how parental education relates to four outcomes in the children's generation: education, lifetime earnings, health, and wealth. By focusing on parents' and children's ranks, we characterize relative mobility in terms of distributions of outcomes and can see patterns that even a relatively disaggregated analysis, like a quintile-based transition matrix, can obscure. Our results show relatively high intergenerational mobility except at extremes, where very low-ranked parents are much more likely to have very low-ranked children and very high-ranked parents are much more likely to have very high-ranked children.
Rising Tides and Retirement: The Aggregate and Distributional Effects of Differential Wage Growth on Social Security (Research Report)
Recent growth in wage inequality has important implications for Social Security solvency and benefit distributions. Because only earnings below the taxable maximum are subject to payroll taxes, concentrated wage growth among higher earners generates less revenue than more evenly distributed growth. Social Security's progressive benefit formula increases benefit payouts when shares of workers with low wages grow. We use a dynamic microsimulation model to examine aggregate and distributional consequences of alternative scenarios about future wage growth. We find that relatively modest changes in assumptions about wage differentials generate marked changes in projected Social Security benefits, poverty, and long-term financing status.
Publications on Income and Wealth Distribution
Municipal Debt: What Does It Buy and Who Benefits? (Research Report)
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This paper examines the incidence of the federal income tax exemption of interest on state and local bonds, applying a fixed-savings, simplified general equilibrium approach to estimate incidence effects on both the sources and uses of income. In contrast to traditional empirical work that allocates the benefit of tax exemption only to current holders of tax-exempt bonds based on current interest rates, we incorporate the fact that the existence of tax exemption causes the taxable interest rate to rise and the tax-exempt rate to fall. As a consequence, on the sources side, tax exemption can increase after-tax income for holders of both taxable and taxexempt bonds. On the uses side, consumers of both private and public goods are affected by the higher cost of funds to private and federal government borrowers, the lower cost of funds to state and local borrowers, and the lower cost of funds to private-sector entities with access to the proceeds of tax-exempt borrowing. Overall, higher income individuals remain the primary beneficiaries of tax exemption on the sources side with this new approach, but less so than under the traditional approach. On the uses side, households who consume a relatively large share of state and local public services, such as those with several school-age
children, receive significant net benefits.
State Economic Monitor: October 2014 (Series/State Economic Monitor)
|Posted to Web: October 29, 2014||Publication Date: October 29, 2014|
Most states ended the summer of 2014 on a positive economic note. Up from 14 states a year earlier, 25 states reported August unemployment rates below 6 percent. Every state but Alaska added jobs within the last year. But some troubling signs remain. Inflation-adjusted average weekly wages declined or did not change in 26 states. The latest issue of the State Economic Monitor describes economic and fiscal trends at the state level, highlighting particular differences across the states in employment, state government finances, and housing conditions. This issue also includes a special section on state minimum wages.
Who Benefits from Asset-Building Tax Subsidies? (Fact Sheet / Data at a Glance)
|Posted to Web: October 16, 2014||Publication Date: October 16, 2014|
Tax subsidies for asset building totaled $384 billion in 2013, with the vast majority going toward subsidizing homeownership and retirement saving. This factsheet summarizes distributional estimates of major tax subsidies for homeownership, retirement saving, and higher education. Low- and moderate-income households benefit very little from these subsidies. For example, about 70 percent of the mortgage interest deduction and employer-sponsored retirement plan subsidies go to the top 20 percent of tax payers while the bottom 20 percent receive less than one percent. Upper-income households, which likely require less incentive to save, may merely shift assets from unsubsidized to subsidized accounts.
Debt in America (Research Report)
|Posted to Web: September 24, 2014||Publication Date: September 24, 2014|
Debt can be constructive, allowing people to build equity in homes or finance education, but it can also burden families into the future. Total debt is driven by mortgage debt; both are highly concentrated in high-cost housing markets, mostly along the coasts. Among Americans with a credit file, average total debt was $53,850 in 2013, but was substantially higher for people with a mortgage ($209,768) than people without a mortgage ($11,592). Non-mortgage debt, in contrast, is more spatially dispersed. It ranges from a low of $14,532 in the East South Central division to a high of $17,883 in New England.
Delinquent Debt in America (Research Report)
|Posted to Web: July 29, 2014||Publication Date: July 29, 2014|
Roughly 77 million Americans, or 35 percent of adults with a credit file, have a report of debt in collections. These adults owe an average of $5,178 (median $1,349). Debt in collections involves a nonmortgage bill—such as a credit card balance, medical or utility bill—that is more than 180 days past due and has been placed in collections. 5.3 percent of people with a credit file have a report of past due debt, indicating they are between 30 and 180 days late on a nonmortgage payment. Both debt in collections and debt past due are concentrated in the South.
|Posted to Web: July 29, 2014||Publication Date: July 29, 2014|