Recent income gains went to those with highest income

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Snapshot for March 28, 2007.

Recent income gains went to those with highest income

by Lawrence Mishel and Jared Bernstein   

Newly released data on income inequality reveal that all of the gains in 2005, the most recent year for data of this type, went to households in the top 10%.  Moreover, those even higher up the income scale—say, the top 1% and above—saw the largest gains of all. 

The economy expanded in 2005, with gross domestic product and productivity both posting solid gains (3.2% and 2.1%, respectively).  Yet, as shown in the chart below, real market income (i.e., income aside from government transfers) actually fell slightly (-0.6%) for those in the bottom 90% of the income scale.

Income growth for households within the 90-95th percentile was moderate in 2005, up 2.2%.  But higher income households did much better.  In fact, income growth among the top half of the top 1%—a group whose average annual income is already $1.8 million—was up another 16% in 2005 alone.

These trends lead to two clear conclusions.  First, the factors driving inequality—diminished union presence, globalization, surging CEO pay—are funneling growth to the top of the income scale and dramatically shaping the economic fate of America's working families.  Second, these income trends clearly argue against further regressive tax cuts that continue to favor the wealthiest and exacerbate the seriously skewed pre-tax income distribution.