CBO report finds income inequality has grown in the US in 40 years

Income inequality in the United States grew between 1979 and 2018, a recent report on the distribution of household income released by the Congressional Budget Office (CBO) has found.

In the report, which dropped on Wednesday, the office said that after comparing different cumulative growth rates in average household income, it found that income inequality was higher in 2018 than nearly four decades before.

The report estimated households sitting at the highest rung of income distribution saw more growth in average household income before transfers and taxes during that period than those at the lowest levels.

“Among households in the highest quintile, average real (inflation-adjusted) income in 2018 was 111 percent higher than it was in 1979,” the office said in the report.

But average income before transfers and taxes among households in the lowest quintile was estimated to have only grown by 40 percent in that same time frame, the report said. The figure was slightly lower among households in the three middle quintiles reviewed in the report; they saw just 37 percent growth.

“From 1979 to 2018, among households in the lowest income quintile, cumulative growth in income after transfers and taxes was greater than cumulative growth in income before transfers and taxes—91 percent versus 40 percent,” the report said.

“That faster growth is attributable both to an increase in means-tested transfers (especially Medicaid) and to a reduction in federal taxes—the latter largely the result of increased refundable tax credits provided through the individual income tax,” it added.

The CBO made a similar finding among households in the middle three income quintiles.

“Cumulative growth in income after transfers and taxes was larger for those groups than it was before transfers and taxes—53 percent versus 37 percent,” the report stated, adding households in the highest quintile also saw their income after transfers and taxes had grown higher, 120 percent versus 111 percent. 

Households that saw the biggest cumulative growth in income after transfers and taxes were those who sat in the top 1 percent of the income distribution, the report said. 

“In 2018, real income after transfers and taxes for that income group was 268 percent greater than it was in 1979, CBO estimates,” the report said.

“Overall, the transfer programs and the tax system reduced income inequality by more in 2018 than they did in 1979,” it added. “Consequently, inequality of income after transfers and taxes increased by less than inequality of income before transfers and taxes.”

The report comes several years after the Census Bureau said in 2019 that it found income inequality in the nation had reached its highest point in more than 50 years.