How Unequal Is America?

Start Here: Would You Rather?

Decide on each round before you read on. Then read the reply to each.

Measure: How Do We Know?

You may have heard that inequality in America has exploded, with the rich capturing almost all the gains. You may also have heard that the problem is exaggerated. Serious researchers make both claims, often using the same tax records. Much of the difference comes down to measurement: what counts as income, who counts as a household, and whether you look at one year or a lifetime.

1 What counts as income?

The best-known statistic comes from the Census Bureau’s “money income,” which counts pre-tax cash only. It leaves out taxes and most noncash help, such as Medicaid and food assistance. Because taxes fall mostly on higher earners and most aid goes to lower earners, leaving both out makes inequality look larger. Four U.S. measures compare this way:

The difference is large. In 2022, means-tested aid and federal taxes raised the average income of the lowest-income fifth of households from about $26,200 to $44,800. Measured with Census money income, the top fifth receives about 17 times the bottom fifth’s share. Using the Congressional Budget Office’s (CBO’s) averages, the top fifth’s income is about 16 times the bottom fifth’s before transfers and taxes, and about 7 times after.

A fair caution. More and more aid comes as noncash benefits: Medicaid and the Children’s Health Insurance Program grew from 9 percent of the bottom fifth’s pre-transfer income in 1979 to 48 percent in 2023. CBO counts Medicaid at what the government spends. One major study found low-income adults value Medicaid at about 20 to 50 cents per dollar spent on their behalf. Much of the rest pays for care they would have received anyway, often unpaid, so it also helps hospitals and others. Counting benefits at full cost may overstate how much they narrow the gap; leaving them out understates it.

2 Who is in a household?

Households are not alike. In 2024, the lowest-income fifth of households averaged 1.6 people and half an earner, and the head of household was 57 years old on average. The highest-income fifth averaged 3.2 people and 2.1 earners. Many bottom-fifth households are retirees or people living alone; many top-fifth households are two-paycheck families in their peak earning years. Careful researchers adjust for household size. CBO does, and it still finds that inequality rose after taxes and transfers, from a Gini of 0.352 in 1979 to 0.434 in 2022.

3 A snapshot or a movie?

Over a lifetime. A one-year snapshot treats the bottom fifth as a fixed group. It isn’t. A 22-year-old apprentice and a 55-year-old master electrician can be the same person at different points in life. Movement up and down the ladder shrinks lifetime gaps, but it offsets rising inequality only if mobility has also increased.

Across generations. A well-known study found the share of children earning more than their parents fell from about 90 percent for those born in 1940 to about 50 percent for those born in the early 1980s. Adjusting for smaller households, the same authors report about 60 percent. A critic who also used a different inflation measure and counted government cash aid estimates about 68 percent. Both agree the trend is down; they disagree about how far.

Moving up in rank. A different question is whether a child’s chances of climbing the ranks have changed. For children born from 1971 to 1993, they have not: the odds of moving up the income ladder, relative to others, stayed about the same. But the rungs have grown farther apart, so the family you are born into now makes a bigger difference in dollars. Each side of the debate can point to half of that finding.

By place. Where you grow up matters. Among the 50 largest metro areas, a child born into the bottom fifth had a 4.4 percent chance of reaching the top fifth in the Charlotte area, just up the road, the lowest of all. In San Jose, the chance was 12.9 percent. Areas with more upward mobility had less residential segregation, less income inequality, better schools, stronger community ties, and more two-parent families. Researchers on the left and right read that list differently.

4 The top 1 percent debate

Researchers using the same IRS records reach different answers about the share of income after taxes and transfers going to the top 1 percent:

Why so different? Tax law is one reason. After the Tax Reform Act of 1986, many businesses began reporting profits on their owners’ personal returns instead of corporate returns, so top incomes on personal returns jumped even though some of that income had simply changed form. The teams also disagree about how to count unreported income, retirement savings, and the value of government spending such as roads and schools. Note that CBO starts in 1979, a low point for top shares, and does not try to count all national income, as the other two teams do.

Who are the rich? Mostly not tech founders or hedge-fund managers. Economists Owen Zidar and Eric Zwick find that the typical member of the top 1 percent owns an ordinary private business, such as a medical or dental practice, law firm, car dealership, distributor or chain of restaurants. About 3 million such owners are each worth at least $5 million. Together they hold roughly eight to ten times the wealth of the 400 richest Americans. Much of this wealth was built by founding or buying a business, and some was inherited. Because these owners live in nearly every community, they also carry local political weight. They help shape licensing rules, zoning and state laws that can protect existing businesses from new competitors.

5 Beyond income: wealth and health

• Wealth is far more concentrated than income. In mid-2026, the wealthiest 1 percent of households held 32.5 percent of household net worth, up from 22.8 percent in 1989. The bottom half held 2.3 percent. Two cautions: young people naturally have little wealth, and these figures leave out the value of future Social Security benefits, a major asset for middle- and lower-income families.
• Health tracks income. From 2001 to 2014, the richest 1 percent of men lived about 14.6 years longer than the poorest 1 percent; for women the gap was 10.1 years. The gap widened over that period. Life expectancy for low-income people varied widely from place to place and was linked to health behaviors such as smoking.

6 The gap or the floor?

Inequality measures the distance between rungs on the ladder. Poverty measures how many people stand below a line, and where that line is drawn matters.

• Relative lines move with the average. The European Union counts people as at risk of poverty if their income is below 60 percent of their country’s median. Under a line like this, poverty falls only if the bottom gains faster than the middle, even when everyone is getting richer.
• The official U.S. line is fixed. It was set in the 1960s at three times the cost of a minimum food diet and is updated only for inflation. In 2025, 10.2 percent of Americans were below it.
• A broader measure counts more. The Census Bureau’s Supplemental Poverty Measure counts taxes and noncash aid, and it sets its line based on what families recently spent on food, clothing, shelter, and utilities, so the line rises as living standards rise. It found 13.1 percent in poverty in 2025. Social Security alone kept 28.8 million people above the line.
• What people consume. Two economists who measure poverty by what households spend, with a different inflation adjustment, found it fell from 13.0 percent in 1980 to 2.8 percent in 2018, using the 1980 standard of living. Over the same years the official rate fell only 1.2 points. Using a 2015 standard, it fell from 32.9 to 10.8 percent. Where the line is drawn changes the level, but by either standard the decline is large.

Explain: What Drives the Gaps?

Researchers point to several causes that can work at the same time. They disagree about how much each one matters.

Key Terms in Plain Words

Gini index

A 0-to-1 summary of inequality. 0 means equal incomes; 1 means one household has it all.

Quintile

One-fifth of households, ranked by income.

Money income

The Census Bureau’s main measure: pre-tax cash income, before most government benefits.

Market income

Income earned in the market: wages, business income, interest, dividends, and capital gains.

Transfer payments

Government payments to households, in cash (Social Security) or in kind (Medicaid, food aid).

Progressive tax

A tax that takes a larger share of income as income rises.

Income mobility

Movement up or down the income ladder over a lifetime or across generations.

Wealth (net worth)

What a household owns, such as homes, savings, and stocks, minus what it owes.

Absolute poverty line

A fixed income standard, adjusted only for inflation.

Relative poverty line

A line set as a share of typical income, so it rises as incomes rise.

Absolute mobility

Earning more than your parents did, after adjusting for inflation.

Relative mobility

Moving up or down the income ranks compared with others your age.

Positional good

Something whose value depends on having more than others, like a home in a top school district.

Rent-seeking

Trying to gain income through political favors or rules that limit competition, rather than by creating value.