Income inequality in the United States has increased significantly since the 1970s after several decades of stability, meaning the share of the nation’s income received by higher income households has increased. This trend is evident with income measured both before taxes (market income) as well as after taxes and transfer payments. Income inequality has fluctuated considerably since measurements began around 1915, moving in an arc between peaks in the 1920s and 2000s, with a 30-year period of relatively lower inequality between 1950–1980.
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. Measured for working-age households, market income inequality is comparatively high (rather than moderate) and the level of redistribution is moderate (not low). These comparisons indicate Americans shift from reliance on market income to reliance on income transfers later in life and less than households in other developed countries do.
The U.S. ranks around the 30th percentile in income inequality globally, meaning 70% of countries have a more equal income distribution. U.S. federal tax and transfer policies are progressive and therefore reduce income inequality measured after taxes and transfers. Tax and transfer policies together reduced income inequality slightly more in 2011 than in 1979.
While there is strong evidence that it has increased since the 1970s, there is active debate in the United States regarding the appropriate measurement, causes, effects and solutions to income inequality. The two major political parties have different approaches to the issue, with Democrats historically emphasizing that economic growth should result in shared prosperity (i.e., a pro-labor argument advocating income redistribution), while Republicans tend to downplay the validity or feasibility of positively influencing the issue (i.e., a pro-capital argument against redistribution).