Social science research has focused extensively on rising income inequality and the consolidation of household wealth in the hands of the top 1% of U.S. households over the last 30 years. Recently, some policy makers have also been examining the causes and implications of this dynamic.

An October 2011 paper from the Congressional Budget Office, “Trends in the Distribution of House Income Between 1979 and 2007,” analyzes IRS and Census Bureau data to track changes in income across classes of earners.

Study findings include:

• Real income in the U.S. grew by 62% for all households between 1979 and 2007. However, after-tax income of households in the top 1% of earners grew by 275%, while income growth for the bottom fifth of earners was 18%.
• “As a result of that uneven income growth, the share of total after-tax income received by the 1% of the population in households with the highest income more than doubled between 1979 and 2007, whereas the share received by low- and middle-income households declined … The share of income received by the top 1% grew from about 8% in 1979 to over 17% in 2007. The share received by other households in the highest income quintile was fairly flat over the same period, edging up from 35% to 36%.”
• For broader historical perspective, the report notes that other research has “found that income concentration dropped dramatically following World War I and World War II, remained roughly unchanged for the next few decades, and then rose starting in 1975, reaching pre-World War I levels by 2000.”
• Inequities can be attributed to such factors as tax code revisions that favor non-payroll income sources and unprecedented growth in non-labor income such as investment gains and business profits that primarily benefit high-income earners.
• Federal taxes and assistance programs have historically tended to flatten income inequities by boosting the earnings of households in the lower quintiles while levying higher tax rates for higher earners. This dynamic shifted between 1979 and 2007, as changes in the tax system favored higher earners.
• While annual incomes fluctuate within each quintile, top earners have significantly more volatility from year to year due to market variability and changes in the tax code.  For instance, income for the top 1% peaked in 1986, fell in 1987 due to a tax increase, recovered the following year, declined during the recession of the early 1990s, and recovered once again by 1994.
• The percentage of household income from government assistance programs — such as Society Security benefits, Medicaid and the Children’s Health Insurance program — has remained at 10% to 12% over the study period, but more citizens are relying on these benefits in 2007 than in 1979. “Households in the lowest-income quintile received 54% of federal transfer payments in 1979, and 36% in 2007.”
• Sixty-two percent of elderly households received government support in 1979 versus 68% in 2007; 19% of households with children received support in 1979 versus 12% in 2007.

Tags: inequality, poverty, taxation, campaign issue