Gap between highest earners, lower income groups widens dramatically

Author: Diane Stafford

Published: October 1, 2003

The after-tax income gap between the wealthiest fifth of U.S. households and all other households grew dramatically between 1979 and 2000, according to Congressional Budget Office numbers.

Also, while total income rose in all households over the period, the wealthiest fifth of households saw their income leap by 68.3 percent, compared with an 8.7 percent income uptick in the poorest fifth of households.

The income data, contained in a tax report by the nonpartisan congressional office, cuts off in 2000 and therefore excludes the effects of the 2001 recession, the stock market slump and the tax cuts of 2001 and 2003.

Those post-2000 developments caused income declines across the income spectrum. Because the wealthiest households saw income slip along with the lowest-income households, the income gap did not widen further in 2001 and 2002, according to the newer figures from the Census Bureau.

Nonetheless, the bureau numbers released last week showed that 1.7 million more Americans became officially poverty-stricken last year. The 34.6 million Americans classified as living in poverty represent 12.1 percent of the population, up from 11.7 percent in 2001.

Groups that advocate for a reduction in the wage gap said that the congressional budget office report cast doubt on the justification for this year's tax cuts. The data showed that most Americans' federal tax burdens had fallen since 1979.

The budget office report included income taxes, payroll taxes and excise taxes in the federal taxes paid by households.

"The very well off have been big winners on two fronts," said Robert Greenstein, executive director of the Center on Budget and Policy Priorities, a research organization supported primarily by foundations, that analyzes government policies.

"They secured enormous gains in income in both the 1980s and the 1990s and then received extremely large tax cuts in 2001 and again this year," Greenstein said.

Labor-oriented groups took particular note of the congressional budget office numbers about the wealthiest 1 percent of U.S. households. That group's average after-tax income leaped 201 percent from 1979 to 2000, even after adjusting for inflation.

The Urban Institute-Brookings Tax Policy Center reported that the top 1 percent would get an average tax cut this year of $26,300.

In comparison, the budget office numbers show that the middle fifth of U.S. households saw their average after-tax income grow only 15 percent from 1979 to 2000. The Urban Institute-Brookings report said the average tax cut for the middle fifth this year was $680.

The tax cuts' value -- to both households and the national economy -- continues to be a hotly debated political topic. Most Republicans say that tax cuts for the rich will aid in job creation and investments, and that tax cuts for middle and lower-income households will spark the economy by putting spendable dollars in people's pockets.

Democrats are divided. Some say that the tax cuts are inequitable windfalls for the wealthy and that the money should be used instead to tackle rising health-care costs for all Americans. Others think the cuts provide immediate financial benefit to most households.

The Census Bureau report said middle-income household income fell by 1.1 percent last year. Taken with income declines in 2001, the average middle-income household has had a 3.3 percent income loss since 2000, according to the Economic Policy Institute, an economic think tank that looks at public policy issues with regard to labor.