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 $93,858 since 1980 while average income for the 20th percentile has increased by $1,702.
- 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 South Dakota and Utah have lower inequality.
- Among the top 100 largest US cities, Atlanta City, GA had the highest 95/20 ratio in 1980 and again in 2022 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 and corporate consolidation, as well as a higher average unemployment rate, have caused incomes for low-wage workers to grow more slowly than those of high-wage workers. Growing trade with low-wage countries, automation, and stagnant minimum wage rates also contribute to income inequality. However, growing income inequality disproportionately impacts women and people of color as these populations are concentrated in low-wage jobs. This trend is a result of historical practices, such as racial segregation and policies that banned women and people of color from accessing education and higher paid professions, as well as ongoing factors, including biased hiring practices and inadequate childcare support.
Strategies
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, requiring paid sick days, ending wage theft, and ensuring fair scheduling.
- Expand the Earned Income Tax Credit (EITC) and protect against predatory, high-cost financial service providers.
- 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, create cradle-to-career pipelines for vulnerable youth, increase access to affordable childcare, and invest in universal pre-K.
- At the federal level, institute a federal jobs guarantee, dedicate 1 percent of infrastructure investments to a fund for inclusive job and contracting supports, 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 2023, the federal EITC program along with the federal Child Tax Credit helped lift an estimated 6.4 million people out of poverty. Thirty-one states, along with the District of Columbia, Puerto Rico, New York City, San Francisco, and Montgomery County in Maryland, offer their own local EITCs. Washington, DC's EITC is among the most generous in the nation. In 2024, the DC EITC was 70 percent of the federal credit (while some states offer as low as 3 percent) and cash refunds when your credit exceeds your cash obligation. Over the years, the DC EITC was recently expanded to reach childless workers (workers without children as well as non-custodial parents) and some immigrant taxpayers who file taxes using Individual Tax Identification Numbers, a large share of whom are not typically eligible for the federal EITC. Learn more.
Photo: Irina on Unsplash
Resources
Reports: How the Federal Tax Code Can Better Advance Racial Equity; Taxes and Racial Equity: An Overview of State and Local Policy Impacts; Tax Justice is Gender Justice; Income inequality in the U.S. by state, metropolitan area, and county; Right-to-Work Laws, Unionization, and Wage Setting
Data: State of Working America; Black Wealth Data Center; The Unequal States of America: Income inequality in the United States; Metro Monitor
