Income inequality: Inequality undermines economic opportunity and prosperity.
Insights & Analyses
- Since 1980, the incomes of the top earners (those at the 95th percentile) have grown more than the incomes of earners at the 20th percentile, and the 95/20 ratio of those incomes has grown.
- The average income for those in the 95th percentile of household incomes has increased by $64,416 since 1980 while average income for the 20th percentile has fallen by $221.
- The 95/20 ratio is highest today in states with large cities and populations of color, such as the District of Columbia and New York, while Whiter, more rural states, such as Utah and Wyoming have lower inequality.
- Among the top 100 largest US cities, Atlanta City, GA had the highest 95/20 ratio in 1980 and again in 2019 while Virginia Beach City, VA has maintained one of the lowest ratios.
Drivers of Inequity
Reduced bargaining power among workers due to declines in union membership, an increased average unemployment rate, and growing trade with low-wage countries have resulted in increased income inequality. The dismantling of social protection policies, such as welfare reforms passed in 1996 that tied benefits to employment, have also contributed to this increase. Growing income inequality has disproportionately impacted women and people of color. Historical practices, such as racial segregation and policies that banned women and people of color from accessing education and higher paid professions, and ongoing factors, including biased hiring practices, inadequate childcare support, and disparities in wealth have contributed to these race and gender disparities.
Grow an equitable economy: Policies to reduce income inequality
Raise the floor on low-wage work by increasing the minimum wage or enacting living-wage laws, and adopting or expanding the Earned Income Tax Credit.
- Implement progressive tax policies and strengthen the safety net.
- Make it easier for workers to start and join unions.
- Pursue full employment through monetary policy, infrastructure investments, work-sharing, and other strategies.
- Expand access to high-quality public education, including universal preschool.
- At the federal level, guarantee workers’ right to organize at scale, end right-to-work laws, enact a $15/hour minimum wage for all workers, increase the tax rate on capital gains and dividend income, and enforce corporate tax responsibilities by eliminating tax loopholes.
Strategy in Action
Washington, DC's EITC lifts the incomes of low-wage workers. Tax policy is an important tool for reducing inequality and the Earned Income Tax Credit (EITC) plays a major role in boosting incomes and encouraging work for low-income working families. In 2017, the federal EITC program helped lift an estimated 5.7 million US families out of poverty. Twenty-eight states, along with the District of Columbia, New York City, and Montgomery County offer their own EITCs. Washington, DC's EITC is the most generous in the nation. It offers 40 percent of the federal credit (while some states offer as low as 3 percent) and cash refunds when your credit exceeds your cash obligation. The DC EITC was recently expanded to reach childless workers (workers without children as well as non-custodial parents), a large share of whom are not typically eligible. Learn more.
Photo: Irina on Unsplash