Despite Government Intervention, The Income Gap in America Continues to Grow Wider

In the period between 1979 and 2016 economic data on income distribution in the United States shows a growing gap between the very richest and the poorest of American citizens. The Congressional Budget Office (CBO), which has been tracking this data for decades, recently released a report of household income distribution in 2016, the most recent year currently available for study. The results are startling.

When examining the household incomes of the top 20 percent and bottom 20 percent of earners in this country, the CBO found that the differences in earnings are astronomical. The average household income of Americans in the bottom 20 percent of earners in this country is about $21,000. That of the top 20 percent is about $291,000. The average income of the notorious 1 percent of Americans is $1.8 million. These figures also reflect social insurance benefits such as Social Security and Medicare.

The Peter G. Peterson Foundation (PGPF) puts this into further perspective: Since 1979, the total share of pre-tax income in the United States held by the top 1 percent of earners has risen from nine percent to 16 percent in 2016. Meanwhile, the bottom fifth of earners have decreased their relative share of the economy, holding five percent of income in 1979 and just 4 percent in 2016.  But while the income and wealth gaps in this country have continued an upward trajectory for decades, there are certain economic mechanisms and government programs that attempt to provide a bridge for those earning far less than their wealthier peers.

The progressive tax code in the United States is one mechanism through which the massive disparities in income earned in this country are reduced. To put it simply, those who earn more are required to pay a larger share of their income in taxes than those who earn less. According to tax rate estimates for 2016 provided by the TaxFoundation.Org, those who were considered the bottom 20 percent of household earners had their income taxed at roughly 15 percent.  American households earning in the top 20 percent of the country were taxed significantly higher, starting at 28 percent up to $231,450 and as high as 39.6 percent for joint incomes at $466,950 and beyond. For individual incomes, the rate stayed the same for those making $37,650 and lower, while the individual filers making $291,000 and greater were taxed starting at 33 percent. Aside from the progressive tax rate, there are also government wealth transfer programs aimed at reducing poverty which help those at the bottom fifth of household income in the United States.

One of these programs which provide some of the most essential assistance to low income earners and families is the Supplemental Nutrition Assistance Program (SNAP). SNAP, often referred to colloquially as the Food Stamp Program, provides supplemental assistance to low income households through government issued funds on a debit card to combat hunger and food security for those in need. According to information provided by PGPF, SNAP is the largest nutrition assistance program in the United States, providing an essential social service at a small fraction of the Federal Budget; in FY2018 it cost taxpayers $65 billion, or just 1.6 percent of the Federal budget.

The primary beneficiaries of SNAP are households earning $24,600 or less for a household of four, providing them with up to 1/3 of their monthly salaries to purchase food. While many of the recipients are expected to meet certain work requirements, some such as the elderly, receive certain exemptions, and the majority of funds go into households with small children. FY2018 is the most recent year for which information on SNAP is publicly available, and the data demonstrates a positive uplifting effect on those living at or below the poverty line. PGPF provides data from the Department of Agriculture which demonstrates that the percent of SNAP eligible households living above the poverty line without SNAP benefits was just 19 percent. However, the number of households who were above the poverty line in conjunction with receiving the government assistance rose to 28 percent. American households earning half or less than a yearly $24,600 income are living in “deep poverty,” according to the government. Thirty eight percent of SNAP eligible households are considered to be living in deep poverty without the benefits, but that remember is reduced to 27 percent when the benefits are included. Ultimately the SNAP program provided an essential service at reducing the effects of poverty to 40 million beneficiaries in FY2018. It considerably reduced the stress on resources for the bottom fifth of earners at the cost of just $30 per week, per beneficiary, and allowed them to keep more money in their pockets for other things.

The SNAP program is just one of many government run programs in the United States meant to alleviate the drastic income inequalities in the country, but the fact remains: Income disparity amongst Americans as of FY2016 is getting wider by the year. PGPF notes that between 1979 and 2016 average household income in America grew by 60 percent on average, but the top 1 percent of earners in 2016 made 99 percent more than their counterparts in 1979. This represented three times the growth of that gained by the lowest 20 percent of earners, and in 2016, the top 1 percent earned four times more than the bottom 20 percent of all American households combined. Most troubling is the percentage that means-tested transfer programs accounted for in the income growth of the country’s bottom earners. As of 2016, means-tested programs such as SNAP represented 72 percent of household income for the bottom 20 percent, which represented an increase of nearly 40 percentage points from 1979. 

Government data illustrates the ever expanding gulf between the financial growth of low income American households and their counterparts in higher tiered tax brackets. The underlying economic frameworks which have enabled this massive growth disparity have favored the increase and accumulation of wealth for the few, while the incomes of far more Americans have stagnated. The data presented suggests that since 1979 the minor increase in earned income for those at the bottom has primarily arrived through government subsidies, not economic opportunity. Without a fundamental change in the business practices and economic strategies which have created this gap, it is likely that the economic experience in this country will continue to propel certain segments of society to extreme wealth, while keeping many more in a cycle of poverty and flat wages.

Grassroots Pulse covers public policy and political issues aimed at engaging highly-active policy makers, donors, and grassroots leaders at the forefront of the political process in America today.

Image Credit: Photo by Anastase Maragos on Unsplash

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