Drastic income inequality is putting a strain on America’s social safety net

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Jason Merritt/Getty Images

  • Sharp US income inequalities are only partially offset by means-tested social programs and taxation-based transfers, according to a new report from the Congressional Budget Office.
  • For the top 20% richest US households, average income was more than ten times that of households in the lowest quintile.
  • Income inequality has worsened considerably in the last three decades, the report finds; it also identifies deep disparities within the wealthiest 20%.

US inequality has become so vast that taxes and transfers don’t even come close to narrowing the gap.

A new report from the independent Congressional Budget Office based on the most recent available data, from 2014, offers some enlightening statistics on the issue – and that was before the new tax reform law made the system substantially less progressive.

For the top 20% richest US households, average income was more than 10 times that of households in the lowest quintile.For that group, average income was $19,000. For the top 20%, average income was about $281,000.

Average Income PreTransfer

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Congressional Budget Office

The report notes that taxes and transfers blunt some of the most extreme effects of inequality, but serve more as a palliative than a long-term solution.

Means-tested transfers are cash payments and in-kind benefits from federal, state, and local governments that are designed “to provide assistance to individuals and families with low income and few assets,” the CBO says.

They include benefits from government assistance programs such as Medicaid and the Children’s Health Insurance Program (CHIP), the Supplemental Nutrition Assistance Program (SNAP, formerly known as the Food Stamp program), and Supplemental Security Income (SSI). Federal taxes consist of individual income taxes, payroll taxes, corporate income taxes, and excise taxes.

The combination of those programsincreased income among households in the lowest quintile by $12,000 (or more than 60%), on average, to $31,000. The US poverty level for a family of four was $24,600 last year.

Taxes and transfers decreased income among households in the highest quintile by $74,000 on average to $207,000.

The post-program distribution is less skewed but a substantial divide remains.

CBO2

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Congressional Budget Office

Income distribution is highly skewed even among the very rich, the CBO finds.

“Average income among households in the bottom half of the highest quintile (the 81st to 90th percentiles) was about $151,000; average income among the 1.2 million households in the top 1% of the distribution was about $1.8 million.”

CBO9

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Congressional Budget Office

Income growth among households in the bottom 80% of the income distribution was less than half the overall growth rate. Meanwhile, among households in the highest quintile, average income in 2014 was 95% higher than it was in 1979.

“Because of those differences in cumulative growth rates, income inequality was greater in 2014 than it was in 1979.”

CBO 1979 2014

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Congressional Budget Office