Pathbreaking Congressional Budget Office Study Shows Dramatic Increases in Income Disparities in the 1980s and 1990s: An Analysis of the CBO Data

Abstract

Researchers at the Center on Budget and Policy Priorities analyze the data presented in a Congressional Budget Office study that includes the best data any agency or institution has compiled on income and tax trends in recent decades. The CBO report shows that the average after-tax income of the richest 1 percent of Americans grew by $414,000 between 1979 and 1997 (after adjusting for inflation) while average after-tax income fell $100 for the poorest 20 percent of Americans and grew a modest $3,400 for those in the middle of the income spectrum. In percentage terms, after-tax income grew an average of 157 percent over this period for the top 1 percent, rose a modest 10 percent for the middle 20 percent, and was effectively unchanged for those in the bottom fifth. Income gaps between rich and poor and between the rich and the middle class widened in the 1980s and 1990s and reached their widest point on record in 1997. Even before enactment of the 2001 federal tax cuts, the percentage of income Americans pay in federal taxes has declined since 1979 for every income group. By one key measure, the percentage of income paid in federal taxes fell the most for those with the highest incomes.