Why the Surge in Income Inequality?

Income inequality is more severe in the United States than in any other affluent longstanding-democratic country, and it has increased sharply in the past generation. The rise in inequality is mainly a story of growing separation between households in the top 1 percent and those in the ‘‘bottom’’ 99 percent. Income inequality within the lower 99 percent increased in the 1980s and 1990s, but since then it hasn’t changed much. A common measure of top-end income inequality is the share of income that goes to the top 1 percent of households. According to the World Wealth and Income Database (Alvaredo et al. 2016), the top 1 percent’s share of pretax income increased from 18 percent in 1913, the first year of available data, to 24 percent in 1928. It then fell sharply during the Great Depression and World War II to 13 percent in 1945. Between 1945 and the end of the 1970s it continued to decrease, slowly but steadily, reaching 10 percent in 1979. By 2014 it had jumped to 21 percent. For the period since 1979, the Congressional Budget Office (2016) has compiled estimates of the top 1 percent’s share of posttax income (that is, with tax payments subtracted from income), and the upward trend is similar


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