Rich-Poor Gap Held Widest in 40 Years

The incomes of the richest 1% of Americans grew more than 87% in the last decade, while the incomes of the poorest American households dropped more than 5%, the Center on Budget and Policy Priorities reported Monday.

At the same time, the 60% of Americans between the richest and poorest posted modest gains in income. However, according to the center’s report, “the share of national income going to those in the middle of the income scale is now lower than at any time since the end of World War II.”

Basing its analysis on data and estimates recently released by the Congressional Budget Office, the center concluded that the income gap between rich and poor is greater in 1990 than at any time since records were first kept 40 years ago.

The sharp increase in the gap was caused mainly by changes in the tax structure and by an increase among the wealthy in capital gains income from investments, including profits on stock and real estate, according to the report. It was written by the center’s executive director, Robert Greenstein, and an associate, Scott Barancik.

The gap is so wide that “the combined incomes of the richest 2.5 million Americans now nearly equals the combined incomes of the 100 million Americans with the lowest incomes,” the report said.

The center, a nonprofit organization devoted to research on poverty, said that the gap between rich and poor narrowed during the 1950s and 1960s, grew modestly during the 1970s, then increased sharply during the 1980s.

Some of the statistics, even though they were adjusted to take inflation into account, were stark in their contrast. The center found that the richest 20% of American households increased their income after taxes from an average of $58,886 in 1980 to an average of $78,032 in 1990--a boost of 32.5%.

The richest 1% of Americans increased their incomes from an average of $213,675 in 1980 to an average of $399,697--a boost of 87.1%. Yet, at the same time, the poorest 20% of American households found their income dropping from an average of $7,357 in 1980 to $6,973--a loss of 5.2%.

The top 1% of households more than doubled their capital gains income from $83,000 in 1980 to $175,000 in 1990. This accounted for nearly 40% of the increase in the income of this group of Americans over the decade. As might be expected, income from capital gains is negligible among those Americans in the lowest 40% of the income scale.

As a result, the center concluded that 94% of the benefits from the Bush Administration’s proposed cut in the capital gains tax would go to the richest 20% of Americans. “That would make the disparities between wealthy and other Americans even greater,” Greenstein said in a statement accompanying the report.

The statistics also showed that the rich gained the most from tax cuts during the Ronald Reagan Administration. While the percentage of income paid in taxes by the richest 20% of Americans dropped 5.5% in the past decade, the percentage paid by the poorest increased 16.1%. Income, Social Security, payroll and excise taxes were included in the calculations.

The statistics also showed that federal taxes on the richest 1% of American households declined from 31.8% in 1980 to 27.2% in 1990. During the same period, taxes on the poorest 5% increased from 8.4% in 1980 to 9.7%.