Income inequality has fluctuated considerably in the United States since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a lower level of inequality from approximately 1950-1980 (a period named the Great Compression), followed by increasing inequality, in what has been coined as the great divergence.

The U.S. has the highest level of income inequality among its (post-industrialized) peers.United Press International (UPI), June 22, 2018, "U.N. Report: With 40M in Poverty, U.S. Most Unequal Developed Nation" When measured for all households, U.S. income inequality is comparable to other developed countries before taxes and transfers, but is among the highest after taxes and transfers, meaning the U.S. shifts relatively less income from higher income households to lower income households. In 2016, average market income was $15,600 for the lowest quintile and $280,300 for the highest quintile. The degree of inequality accelerated within the top quintile, with the top 1% at $1.8 million, approximately 30 times the $59,300 income of the middle quintile.

The economic and political impacts of inequality may include slower GDP growth, reduced income mobility, higher poverty rates, greater use of household debt, leading to an increased risk of financial crises, and political polarization. Causes of inequality may include executive compensation increasing relative to the average worker, financialization, greater industry concentration, lower unionization rates, lower effective tax rates on higher incomes, and technology changes that reward higher educational attainment.

Measurement is debated, as inequality measures vary significantly, for example, across datasets or whether the measurement is taken based on cash compensation (market income) or after taxes and transfer payments. The Gini coefficient is a widely accepted statistic that allows comparisons across jurisdictions, with 0 indicating perfect equality and 1 indicating maximum inequality. Further, various public and private data sets measure those incomes, e.g., from the Congressional Budget Office (CBO), the Internal Revenue Service, and Census. According to the Census Bureau, income inequality reached then record levels in 2018, with a Gini of 0.485, Since then the Census Bureau have given values of 0.488 in 2020 and 0.494 in 2021, per pre-tax money income. For 2025, the Census Bureau reported a Gini index of 0.490 for pretax money income, a change from 2024 that was not statistically significant.

U.S. tax and transfer policies are progressive and therefore reduce effective income inequality, as rates of tax generally increase as taxable income increases. As a group, the lowest earning workers, especially those with dependents, pay no income taxes and may actually receive a small subsidy from the federal government (from child credits and the Earned Income Tax Credit). The 2016 U.S. Gini coefficient was .59 based on market income; it was reduced to .42 after taxes and transfers, according to Congressional Budget Office (CBO) figures. The top 1% share of market income rose from 9.6% in 1979 to a peak of 20.7% in 2007, before falling to 17.5% by 2016. After taxes and transfers, these figures were 7.4%, 16.6%, and 12.5%, respectively.

Definitions

Income distribution can be assessed using a variety of income definitions. Adjustments are applied for various reasons, particularly to better reflect the actual economic resources available to a given individual/household.

Market income—Labor income; business income; capital income (including capital gains); income received in retirement for past services; and other non-governmental sources of income Income before taxes and transfers (IBTT)—market income plus social insurance benefits (including benefits from Social Security, Medicare, unemployment insurance, and workers' compensation) Adjusted compensation or income after taxes and transfers—IBTT plus employee benefits and transfers such as housing subsidies, minus taxes Gini coefficient—Summarizes income distribution. It uses a scale from 0 to 1. Zero represents perfect equality (everyone having the same income), while 1 represents perfect inequality (one person receiving all the income). (Index scores are commonly multiplied by 100.)

The CBO explains the Gini as "A standard composite measure of income inequality is the Gini coefficient, which summarizes an entire distribution in a single number that ranges from zero to one. A value of zero indicates complete equality (for example, if each household received the same amount of income), and a value of one indicates complete inequality (for example, if a single household received all the income). Thus, a Gini coefficient that increases over time indicates rising income inequality."

"The Gini coefficient can also be interpreted as a measure of one-half of the average difference in income between every pair of households in the population, divided by the average income of the total population. For example, the Gini coefficient of 0.513 for 2016 indicates that the average difference in income between pairs of households in that year was equal to 102.6 percent (twice 0.513) of the average household income in 2016, or about $70,700 (adjusted for differences in household size). Similarly, the Gini coefficient of 0.521 projected for 2021 indicates that the average difference in income between pairs of households would equal 104.2 percent (twice 0.521) of average household income in 2021, or about $77,800 (in 2016 dollars)."

History Income inequality has fluctuated considerably since measurements began around 1915, declining between peaks in the 1920s and 2007 (CBO data) or 2012 (Piketty, Saez, Zucman data). Inequality steadily increased from around 1979 to 2007, with a small reduction through 2016, followed by an increase from 2016 to 2018.

Before the 20th century In the late 18th century, "incomes were more equally distributed in colonial America than in any other place that can be measured," according to Peter Lindert and Jeffrey Williamson. The richest 1 percent of households held only 8.5% of total income in the late 18th century. Some reasons for this include the ease with which the average American could buy frontier land, which was abundant at the time, and an overall scarcity of labor in non-slaveholding areas, which forced landowners to pay higher wages. There were also relatively few poor people in America at the time, since only those with at least some money could afford to come.

In 1860, the top 1 percent collected almost one-third of property incomes, as compared to 13.7% in 1774. There was intense competition for land in cities and non-frontier areas during this period, with those who had already acquired land becoming richer than everyone else. The burgeoning financial sector also greatly rewarded the already-wealthy, as they were the only ones financially sound enough to invest.

1913–1941 An early governmental measure that slightly reduced inequality was the enactment of the first income tax in 1913. The 1918 household Gini coefficient (excluding capital gains) was 40.8. A brief but sharp depression in 1920-1921 reduced incomes. Income inequality rose from 1913, peaking in 1926 (1928 Gini 48.9, 1936 Gini 45.5) and 1941 (Gini 43.1), after which wartime measures of the Roosevelt administration began to equalize the income distribution. Social Security was enacted in 1935. At several points in this pre-World War II era, in which the Rockefellers and the Carnegies dominated American industry, the richest 1% of Americans earned over 20% of the income share.

Great Compression (1937–1967)

From about 1937 to 1947, a period dubbed as the "Great Compression", income inequality fell dramatically. The GINI fell into the high 30s. Progressive New Deal taxation, stronger unions, strong post-war economic growth and regulation by the National War Labor Board broadly raised market incomes and lowered the after-tax incomes of top earners. In the 1950s, marginal tax rates reached 91%, although the top 1% paid only about 16% in income taxes. Tax cuts in 1964 lowered marginal rates and closed loopholes. Medicare and Medicaid were enacted in 1965. The Earned Income Tax Credit was enacted in 1975.

The income change was the product of relatively high wages for trade union workers, lack of foreign manufacturing competition, and political support for redistributive government policies. By 1947, more than a third of non-farm workers were union members. Unions both raised average wages for their membership, and indirectly, and to a lesser extent, raised wages for non-union workers in similar occupations. Economist Paul Krugman claimed that political support for equalizing government policies was provided by high voter turnout from union voting drives, Southern support for the New Deal, and prestige that the massive mobilization and victory of World War II had given the government.

A 2022 study in the Economic Journal challenged the view that World War II was a great leveler of income inequality. The study points instead to a gradual decline in income inequality during the Great Depression, which extended into the war years.

1979–2007 increase

The return to high inequality began in the 1980s. The Gini first rose above 40 in 1983. Inequality rose almost continuously, with inconsequential dips during the economic recessions in 1990–91 (Gini 42.0), 2001 (Gini 44.6), and 2007. The lowest top 1% pre-tax income share measured between 1913 and 2016 was 10.9%, achieved in 1975, 1976, and 1980. By 1989, this figure was 14.4%; by 1999, 17.5%; and by 2007, 19.6%.

Major economic events that affected incomes included the return to lower inflation and higher growth, tax cuts and increases in the early 1980s, cuts following the 1986 tax reforms, tax increases in 1990 and 1993, expansion of the Children's Health Insurance Program in 1997, welfare reform, a 2000 recession, followed by tax cuts in 2001 and 2003 and increases in 2010.

The Nobel laureate, Princeton economist and The New York Times columnist Paul Krugman called this the Great Divergence,Krugman, Paul, The Conscience of a Liberal, W W Norton & Company, 2007, pp. 124–128 a reference to the "Great Compression", an earlier era in the 1930s and the 1940s when incomes became more equal in the US and elsewhere. He contrasts it with the "Great Prosperity" or Golden Age of Capitalism, where from the late 1940s to mid 1970s, at least for workers in the advanced economies, economic growth had delivered benefits broadly shared across the earnings spectrums, with inequality falling as the poorest sections of society increased their incomes at a faster rate than the richest.

CBO reported that for the 1979–2007 period, after-tax income (adjusted for inflation) of households in the top 1 percent of earners grew by 275%, compared to 65% for the next 19%, just under 40% for the next 60%, and 18% for the bottom fifth. The share of after-tax income received by the top 1% more than doubled from about 8% in 1979 to over 17% in 2007. The share received by the other 19 percent of households in the highest quintile edged up from 35% to 36%. The major cause was an increase in investment income. Capital gains accounted for 80% of the increase in market income for the households in the top 20% (2000–2007). Over the 1991–2000 period, capital gains accounted for 45% of market income for the top 20%.

CBO reported that less progressive tax and transfer policies contributed to an increase in after-tax/transfer inequality between 1979 and 2007.