Income Inequality and the U.S. Tax System

Income Inequality and the U.S. Tax System

ȱ
—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
‘˜–Šœȱǯȱ ž—?Ž›?˜›?ȱ
™ŽŒ’Š•’œ?ȱ’—ȱž‹•’Œȱ’—Š—ŒŽȱ
Š—žŠ›¢ȱŜǰȱŘŖŖşȱ
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȬśŝŖŖȱ
   ǯŒ›œǯ?˜Ÿȱ
řŚŗśśȱ
ȱŽ™˜›?ȱ?˜›ȱ˜—?›Žœœ
Pr
epared for Members and Committees of Congress

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
ž––Š›¢ȱ
While the extent of income inequality is debated periodically, one rarely discussed aspect of
inequality is its impact on the tax system. Given the nature of the U.S. federal tax system,
changes in the distribution of income can have significant implications for who pays the taxes,
how much they pay, and federal tax revenues.
One common measure to characterize inequality or the dispersion of income is the Gini
coefficient, which varies from 0 to 1. A Gini coefficient of 0 indicates that income is evenly
distributed among the population (that is, everyone has the same income) while a value of 1
indicates perfect income inequality (that is, one individual has all the income). Between 1980 and
2004, the Gini coefficient for household income increased from 0.403 to 0.466—a 15.6%
increase. The Gini coefficient for earnings increased by 22.4% from 0.331 in 1980 to 0.405 by
2004. Inequality has, therefore, increased over the past 25 years.
The two major sources of federal tax revenues are the individual income tax and the Social
Security payroll tax, accounting for almost 80% of total federal tax revenue. These two taxes
have different tax bases, tax rates, and adjustments to income. Furthermore, the individual income
tax system consists of the regular income tax and the parallel alternative minimum tax (AMT),
which have different tax bases and tax rates. Consequently, changes in income and earnings
inequality could have very different effects on different parts of the federal tax system.
Many of the parameters of the regular income tax are indexed to inflation. Nevertheless, with
income growing faster than prices and with rising income inequality, more income falls into
higher tax brackets. Individual income tax revenues as a percentage of GDP, however, do not
appear to be associated with rising inequality because the income tax has become less progressive
through legislative changes as inequality has increased. The parameters of the AMT, however, are
not indexed at all. Consequently, the amount of income and the number of taxpayers subject to
the AMT will increase dramatically over time because of income growth and rising income
inequality in the absence of legislative changes. The actual increase in AMT taxpayers has been
limited because of a series of enacted temporary “patches.” Although the maximum taxable limit
of the payroll tax is indexed for average earnings growth, rising earnings inequality has pushed
more and more of covered earnings above the limit. Thus, the proportion of covered earnings that
is taxable has fallen over the past 25 years.
This report will not be updated.

˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
˜—?Ž—?œȱ
Trends in Inequality......................................................................................................................... 2
Household Income .................................................................................................................... 3
Earnings .................................................................................................................................... 5
Trends in the Tax Base and Tax Revenues ...................................................................................... 7
The Regular Individual Income Tax.......................................................................................... 7
The Social Security Payroll Tax................................................................................................ 9
The Individual Alternative Minimum Tax (AMT) .................................................................. 10
Implications of Inequality for Tax Policy.......................................................................................11
Concluding Remarks ..................................................................................................................... 15

’?ž›Žœȱ
Figure 1. Income and Earnings Inequality, 1980-2004 ................................................................... 3
Figure 2. Real Household Income at the 90th Percentile, Median, and 10th Percentile.................... 4
Figure 3. Real Adjusted Gross Income of the Top 10% of Taxpayers............................................. 5
Figure 4. Men’s Real Earnings Inequality, 1980-2004 .................................................................... 6
Figure 5. Women’s Real Earnings Inequality, 1980-2004 ............................................................... 6
Figure 6. Ratio of Taxable to Total Income, 1980-2004.................................................................. 8
Figure 7. Tax Revenues as a Percentage of GDP ............................................................................ 9
Figure 8. AMT Revenues as a Percentage of Total Individual Tax Revenues and AMT
Taxpayers as a Percentage of All Individual Taxpayers ..............................................................11

Š‹•Žœȱ
Table 1. Income Shares for Selected Years.................................................................................... 12
Table 2. Earnings Shares for Selected Years ................................................................................. 14

™™Ž—?’¡Žœȱ
Appendix A. Parameters for the Individual Income Tax ............................................................... 17
Appendix B. Distribution of Families ........................................................................................... 18
Appendix C. Distribution of Workers............................................................................................ 19

˜—?ŠŒ?œȱ
Author Contact Information .......................................................................................................... 19

˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
ublic interest in issues of income inequality appears to wax and wane. Interest sometimes
picks up at election time with a flurry of newspaper and magazine articles and opinion
P pieces. After the election, the issue often disappears from the public consciousness. While
the extent of income inequality and income growth is debated periodically, one rarely discussed
aspect of inequality is its impact on the tax system.
Arguments are offered for and against reducing income inequality. The classic argument against
rising income inequality is the rich get richer and the poor get poorer. This can increase poverty,
reduce well-being, and reduce social cohesion. Consequently, many argue that reducing income
inequality may reduce various social ills. In contrast, there are those arguing that rising inequality
is nothing to worry about and point out that average real income has been rising, so while the rich
are getting richer, the poor are not necessarily getting poorer. In addition, many argue that some
income inequality is necessary to encourage innovation and entrepreneurship—the possibility of
large rewards and high income are incentives to bear the risks of innovation and entrepreneurship.
Therefore, they assert the economic costs of reducing or eliminating income inequality may be
high.
Some researchers are concerned about the consequences of rising income inequality. Research
has demonstrated that large income and class disparities adversely affect health and economic
well-being. Michael Marmot has studied health and social status disparities, concluding that
health follows a social gradient—people higher in the social hierarchy tend to be in better health
than people of lower status.1 Richard Wilkinson provides evidence that high income inequality—
large income disparities—and less social cohesion have a negative impact on the health of a
country’s citizens.2 Robert Frank argues that even if all incomes are increasing and rising
inequality is due solely to those at the top of the income distribution pulling away from the rest,
the middle class can be hurt by the pressure to keep up with the upper class.3
Several factors have been identified as possibly contributing to increasing income inequality.
Some researchers have suggested the decline in unionization and a falling real minimum wage as
the primary causes.4 Others have argued that rising returns to education and skill-biased
technological change are the important factors explaining rising inequality.5 Tax policy, especially
the Tax Reform Act of 1986, has also been identified as a possible cause for rising income
inequality.6 Most analysts agree that the likely explanation for rising income inequality is due to

1 Michael Marmot, The Status Syndrome: How Social Standing Affects Our Health and Longevity (New York: Henry
Holt and Co., 2004).
2 Richard G. Wilkinson, Unhealthy Societies: The Afflictions of Inequality (New York: Routledge, 1996).
3 Robert Frank, Falling Behind: How Rising Inequality Hurts the Middle-Class (Berkeley, CA: University of California
Press, 2007).
4 See David S. Lee, “Wage Inequality in the United States During the 1980s: Rising Dispersion or Falling Minimum
Wage?,” Quarterly Journal of Economics, vol. 114, no. 3 (August 1999), pp. 977-1023; and John DiNardo, Nicole M.
Fortin, and Thomas Lemieux, “Labor Market Institutions and the Distribution of Wages, 1973-1992: A Semiparametric
Approach,” Econometrica, vol. 64, no. 5 (September 1996), pp. 1001-1044.
5 See John Bound and George Johnson, “Changes in the Structure of Wages in the 1980s: An Evaluation of Alternative
Explanations,” American Economic Review, vol. 82, no. 3 (January 1992), pp. 371-392; David H. Autor, Lawrence F.
Katz, and Melissa S. Kearney, “The Polarization of the U.S. Labor Market,” American Economic Review, papers and
proceedings, vol. 96, no. 2 (May 2006), pp. 189-194; and Thomas Lemieux, “Postsecondary Education and Increasing
Wage Inequality,” American Economic Review, papers and proceedings, vol. 96, no. 2 (May 2006), pp. 195-199.
6 See Daniel R. Feenberg and James M. Poterba, “Income Inequality and the Incomes of Very High-Income Taxpayers:
Evidence from Tax Returns,” in James M. Poterba, ed., Tax Policy and the Economy, vol. 7 (Cambridge, MA: MIT
Press, 1993); and Roger H. Gordon and Joel B. Slemrod, “Are ‘Real’ Responses to Taxes Simply Income Shifting
(continued...)
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
skill-biased technological changes combined with a change in institutions and norms of which a
falling minimum wage and declining unionization are a part.7 Research suggests that tax policy,
while possibly having short-term effects on inequality, does not have much impact on longer-term
inequality trends.8
Given the nature of the U.S. federal tax system, changes in the distribution of income can have
significant implications for who pays the taxes, how much they pay, and federal tax revenues.
Furthermore, the tax system is one policy instrument used to change the distribution of economic
well-being, which requires an understanding of how inequality affects the various components of
the tax system and how the various components interact with each other. This report examines
how income inequality interacts with the parameters of the U.S. tax system. The long-term trend
in inequality and how this may be related to taxable income and tax revenues is examined. In
addition, the implications of rising inequality for tax policy are investigated through illustrative
tables.
›Ž—?œȱ’—ȱ —ŽšžŠ•’?¢ȱ
One common measure to characterize inequality or the dispersion of income is the Gini
coefficient, which varies from 0 to 1. A Gini coefficient of 0 indicates that income is evenly
distributed among the population (that is, everyone has the same income) while a value of 1
indicates perfect income inequality (that is, one individual has all the income). The 25-year trends
of the Gini coefficient for household income and individual earnings are displayed in Figure 1.

(...continued)
Between Corporate and Personal Tax Bases?,” in Joel B. Slemrod, ed., Does Atlas Shrug? The Economic
Consequences of Taxing the Rich (New York and Cambridge, MA: Russell Sage Foundation and Harvard University
Press), pp. 240-280.
7 See, for example, Frank Levy and Peter Temin, Inequality and Institutions in 20th Century America, National Bureau
of Economic Research, Working Paper no. 13106, May 2007; and Autor, Katz, and Kearney.
8 See Joel Slemrod and Jon M. Bakija, “Growing Inequality and Decreased Tax Progressivity,” in Kevin A. Hassett and
R. Glenn Hubbard, Inequality and Tax Policy (Washington, DC: AEI Press, 2001), pp. 192-226; Levy and Temin;
Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States, 1913-1998,” Quarterly Journal of
Economics, vol. 118, no. 1 (February 2003), pp. 1-39; and Edward M. Gramlich, Richard Kasten, and Frank
Sammartino, “Growing Inequality in the 1980s: The Role of Federal Taxes and Cash Transfers,” in Sheldon Danziger
and Peter Gottschalk, eds., Uneven Tides: Rising Inequality in America (New York: Russell Sage Foundation, 1993),
pp. 225-249.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Řȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
Figure 1. Income and Earnings Inequality, 1980-2004

Source: Census Bureau.
Between 1980 and 2004, the Gini coefficient for household income increased from 0.403 to
0.466—a 15.6% increase (see the top solid line in Figure 1). For the most part, the Gini
coefficient increased in each year. The earnings of full-time year-round workers also increased
between 1980 and 2004. Although earnings inequality is lower than household income inequality
(the dashed line in Figure 1 is below the solid line), the Gini coefficient for earnings increased by
22.4% from 0.331 in 1980 to 0.405 by 2004. Earlier research shows that the Gini coefficient was
fairly steady in the 1970s, and sharply increased beginning in 1980.9
Summary measures of inequality, such as the Gini coefficient, while useful in capturing overall
changes in inequality, are less useful in locating where in the income distribution the changes are
occurring. Consequently, more detailed information is required. Changes in the distribution of
household income and earnings are examined separately.
˜žœŽ‘˜•?ȱ —Œ˜–Žȱ
One direct method used to locate where in the distribution changes are occurring is to focus on
income changes at various percentiles.10 Figure 2 displays the 25-year trends in real (inflation-
adjusted) household income at the 10th percentile, median, and 90th percentile.11 Real household

9 See Lynn A. Karoly, “Trends in Income Inequality: The Impact of, and Implications for, Tax Policy,” in Joel
Slemrod, ed., Tax Progressivity and Income Inequality (Cambridge, U.K.: Cambridge University Press, 1994), pp. 95-
129.
10 A percentile is a value indicating the percent of the distribution that is equal to or below it. Income at the 10th
percentile, for example, is the income level such that 10% of U.S. households have income at or below this level.
11 Household income includes all cash income received from public and private sources except realized capital gains.
(continued...)
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
řȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
income at the 10th percentile grew modestly by about 12% between 1980 and 2004 (increasing
from $10,097 to $11,271) while median household income grew by 15% (increasing from
$39,739 to $45,817). Real household income at the 90th percentile, however, increased by 36%
over this period, reaching $124,908 by 2004. Household income at the 90th percentile was equal
to 9.1 times household income at the 10th percentile in 1980; by 2004, it had reached 11.2 times
household income at the 10th percentile. The increase in household income inequality between
1980 and 2004 thus arguably appears to be due to those at the top of the income distribution
pulling away from the households lower down in the income distribution.
Figure 2. Real Household Income at the 90th Percentile, Median, and 10th Percentile

Source: Census Bureau.
The next figure, Figure 3, provides a closer examination of the top 10% of the income
distribution. The figure reports adjusted gross income (AGI), excluding capital gains, for various
percentiles in the top 10% of taxpayers in the income distribution.12 AGI at the 90th percentile
increased by 15% over the 25-year period while AGI at the 99.5th percentile increased by 75%
over this period. The evidence from Figure 2 and Figure 3 shows that the steady increase in
income inequality since 1980 was due primarily to large income gains at the top of the

(...continued)
Realized capital gains are not annual income flow and are very volatile with large variations from year to year. Capital
gains are not considered in this analysis.
12 Adjusted gross income includes income potentially subject to tax. It includes wages, salaries, tips, dividends,
business income, and income from some government programs (unemployment insurance and some Social Security
benefits). Benefits from other government programs, such as Temporary Assistance to Needy Families and
Supplemental Security Income, are not included in AGI. The unit of observation for tax data is the taxpayer rather than
the household; there may be more than one taxpayer in a household.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Śȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
distribution. The poor, however, were not getting poorer; their real income appears to have been
roughly steady between 1980 and 2004.
Figure 3. Real Adjusted Gross Income of the Top 10% of Taxpayers

Source: Thomas Piketty and Emmanuel Saez.
Š›—’—?œȱ
Earnings inequality in real terms increased dramatically between 1980 and 2004.13 As with
income inequality, the increase in earnings inequality was mainly due to those at the top of the
earnings distribution pulling away from those lower down in the distribution (see Figure 4 for the
trend for men and Figure 5 for the trend for women). While earnings inequality increased for
both men and women, there are differences in how inequality increased between the sexes. On the
one hand, for men, those at the top of the distribution pulled away from a largely static median
and 10th percentile. The 90th percentile increased by 30% over the 25-year period, while the
median grew by 1% and the 10th percentile fell by 4%. For women, on the other hand, the 90th
percentile pulled away from an increasing median and 10th percentile. The 90th percentile
increased by 58%, while the median increased by 27% and the 10th percentile grew by 7%
between 1980 and 2004.

13 The unit of observation for earnings is the individual worker; individuals with no earnings are excluded.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
śȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
Figure 4. Men’s Real Earnings Inequality, 1980-2004

Source: Census Bureau.
Figure 5. Women’s Real Earnings Inequality, 1980-2004

Source: Census Bureau.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Ŝȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
›Ž—?œȱ’—ȱ?‘ŽȱŠ¡ȱŠœŽȱŠ—?ȱŠ¡ȱŽŸŽ—žŽœȱ
The two major sources of federal tax revenues are the individual income tax and the Social
Security payroll tax, accounting for almost 80% of total federal tax revenue. These two taxes
have different tax bases, tax rates, and adjustments to income. Furthermore, the individual income
tax system consists of the regular income tax and the parallel alternative minimum tax (AMT),
which have different tax bases and tax rates. Consequently, changes in income and earnings
inequality could have very different effects on different parts of the federal tax system.
‘ŽȱŽ?ž•Š›ȱ —?’Ÿ’?žŠ•ȱ —Œ˜–ŽȱŠ¡ȱ
The tax base for the individual income tax consists of wages and salaries, tips, interest and
dividend income, business income, realized capital gains, pension income, and other income.14
The tax base is reduced by selected adjustments such as “above the line” deductions to produce
adjusted gross income (AGI). AGI is reduced by exemptions (personal and dependent) and
deductions (itemized or standard) to produce taxable income on which tax is assessed.
The U.S. federal regular income tax has a progressive rate structure with marginal tax rates
increasing with income.15 Gross tax liability can be reduced by various tax credits, such as the
child tax credit and the earned income tax credit. Since 1984, personal exemptions, the standard
deduction, and the tax brackets have been indexed to inflation, although they have also been
periodically changed by legislation.
The ratio of taxable income to AGI has fluctuated somewhat since 1980 between a low of 65%
and a high of 71% (see the solid line in Figure 6). Some of the fluctuations are due to the
business cycle, to changes in tax law, and the increasing deferment of income through defined
contribution pension plans (e.g., 401(k)s). Additionally, some the changes in this ratio could be
due to changes in income inequality. The correlation between this ratio and the income Gini
coefficient is 0.666, suggesting that as income inequality rises so does the proportion of AGI that
is taxable.16 Income tends to grow faster than prices over time; combining this income growth
with rising income inequality suggests that over time more income will be above the personal
exemption and standard deduction and, therefore, taxable. Consequently, although exemptions
and the standard deduction are indexed to inflation, taxable income will grow with respect to
AGI, holding other parameters of the tax system fixed.

14 Not all interest and pension income is taxable. For more information on the individual income tax, see CRS Report
RL32808, Overview of the Federal Tax System, by Jane G. Gravelle and Donald J. Marples.
15 See Appendix A for the key parameters of the regular income tax since 1980.
16 This correlation is statistically significant. The correlation between this ratio and the 90th-10th percentile ratio is
0.505. The estimated correlations do not control for other factors that may affect the taxable income-AGI ratio, and do
not indicate causality.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŝȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
Figure 6. Ratio of Taxable to Total Income, 1980-2004

Source: Internal Revenue Service and Social Security Administration.
Revenues from the individual income tax have also fluctuated over the past 25 years. The solid
line in Figure 7 displays the 25-year trend of individual income tax revenues as a percentage of
gross domestic product (GDP). Most of the variation in revenues is due to the business cycle and
tax law changes. Individual income tax revenues as a percentage of GDP fell in the early 1980s,
the early 1990s, and 2001 because of recessions. Revenues increased in the 1990s due to tax
increases and the long economic expansion with the latter having a more powerful effect.
Revenues fell dramatically in the early 1980s because of the tax rate reductions enacted in 1980-
1983 and also fell after 2001 because of the 2001 and 2003 tax cuts. Increasing income inequality
appears to have had little association with tax revenues—the estimated correlation between the
Gini coefficient and the ratio of tax revenues to GDP is close to zero. Part of the explanation for
this lack of association could be while rising income inequality has pushed more income into
higher tax brackets, the top marginal tax rates have fallen over the past three decades. Recent
research has shown that the regular income tax has become less progressive since 1960.17

17 See James Alm, Fitzroy Lee, and Sally Wallace, “How Fair? Changes in Federal Income Taxation and the
Distribution of Income, 1978 to 1998,” Journal of Policy Analysis and Management, vol. 24, no. 1 (Spring 2005), pp.
5-22; and Thomas Piketty and Emmanuel Saez, How Progressive is the U.S. Federal Tax System? A Historical and
International Perspective, National Bureau of Economic Research, Working Paper no. 12404, July 2006.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
Şȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
Figure 7. Tax Revenues as a Percentage of GDP

Source: IRS and SSA.
‘Žȱ˜Œ’Š•ȱŽŒž›’?¢ȱŠ¢›˜••ȱŠ¡ȱ
The Social Security payroll tax rate is 12.4%, half of which is paid by the employee and the other
half paid by the employer (the self-employed are responsible for the entire amount).18 The payroll
tax has a constant tax rate, which applies only to covered earnings below the maximum taxable
limit of $97,500 for 2007.19 Covered earnings above the maximum taxable limit are not subject to
the Social Security payroll tax. Since 1983, the maximum taxable limit has been automatically
updated as annual average earnings increase.20 The Social Security payroll tax rate increased
periodically between 1980 (tax rate of 10.16%) and 1990, but has been steady at 12.4% since
1990.

18 For a more detailed description of the payroll tax, see Thomas L. Hungerford, “How Increasing the Payroll Tax Base
Affects Tax Burdens,” Tax Notes, vol. 115, no. 7 (May 14, 2007), pp. 643-648. Before 1984, the self-employed faced a
tax rate that was lower than the combined employee and employer tax rate. Self-employed person can take an above the
line deduction for one half of self-employment taxes they pay.
19 Covered earnings are earnings from employment covered by the Social Security program. Covered earnings below
the maximum taxable limit are called taxable earnings. See U.S. Congressional Budget Office, Differences in Wage and
Salary Income Included in Various Tax Bases, Background Paper, June 2005 for a discussion of differences in earned
income used in various tax bases. The Medicare payroll tax is not considered in this report. The Medicare payroll rate is
2.90% and since 1994, there has been no taxable maximum limit for this payroll tax.
20 The Social Security Trustees note that the real-wage differential (that is, the difference between the percentage
change in the average wage minus the inflation rate) averaged 0.9 percentage point over the past 40 years.
Consequently, average earnings have grown faster than inflation. See The Board of Trustees, Federal Old-Age and
Survivors Insurance and Federal Disability Insurance Trust Funds, The 2007 Annual Report of the Board of Trustees of
the, Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, April 27, 2007, p. 87.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
şȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
Although the maximum taxable limit is indexed for growth in average earnings, the ratio of
taxable earnings to covered earnings has fallen from 90% in 1983 to 85% in 2004 (see the dashed
line in Figure 6). The estimated correlation between the ratio of taxable to covered earnings and
the Gini coefficient is -0.860.21 As earnings inequality has increased, a greater proportion of
covered earnings falls above the maximum taxable limit and is thus not subject to the Social
Security payroll tax.
Social Security contributions (tax revenues) as a percentage of GDP have varied between 4.2%
and 5.1% since 1980 (see the dashed line in Figure 7). In 2004, contributions were equal to 4.7%
of GDP. Although this ratio has not followed an upward trend like earnings inequality, the
estimated correlation between the two is 0.676. It would appear that as earnings inequality
increased since 1980, payroll tax revenues also increased, but not by much.
‘Žȱ —?’Ÿ’?žŠ•ȱ•?Ž›—Š?’ŸŽȱ’—’–ž–ȱŠ¡ȱǻǼȱ
The individual AMT operates parallel to the regular income tax. It has a broader tax base but a
lower tax rate.22 The original rationale for the AMT (and its predecessor) was to make sure high-
income individuals paid at least a minimum of taxes. Higher income taxpayers calculate their
regular tax liability and then their AMT tax liability; they pay whichever is greater.23 Unlike the
regular individual income tax, the parameters of the AMT are not indexed to inflation, but rather
fixed in nominal terms. Consequently, over time the number of taxpayers subject to the AMT and
AMT tax liability will increase due to income growth. While the AMT was established in its
current form by the Tax Reform Act of 1986, Congress has made several changes to the AMT
since then, recently enacting temporary “patches” so as to limit the number of taxpayers subject
to the AMT.24
AMT tax revenue and the number of taxpayers affected by the AMT has fluctuated over the past
25 years, and has steadily increased since 1988 (see Figure 8). Both the proportion of taxpayers
paying the AMT and the proportion of individual income tax revenues due to the AMT increased
after 1982 with the enactment of the Tax Equity and Fiscal Responsibility Act of 1982, which
expanded the individual AMT tax base. The Tax Reform Act of 1986 substantially modified the
AMT by changing the tax rate and expanding the tax base, among other changes. The dramatic
reduction in AMT taxpayers and tax revenues after 1986, however, was due to changes in the tax
treatment of capital gains under the regular income tax. After 1986, capital gains income was
fully taxed under the regular individual income tax and no longer taxed as a tax preference item

21 The estimated correlation is statistically significant. Similarly, the 90th-10th percentile ratio is negatively correlated
(and statistically significant) with the taxable-to-covered-earnings ratio.
22 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire, and The Individual
Alternative Minimum Tax: Historical Data and Projections, Tax Policy Center, November 2006 for detailed
descriptions of the AMT.
23 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire for details on
calculating AMT tax liability.
24 The most recent patch to the AMT increased the AMT exemption amount for 2008. See CRS Report RS22909, The
Alternative Minimum Tax for Individuals: Legislative Activity in the 110th Congress, by Steven Maguire and Jennifer
Teefy for more details. The Tax Policy Center estimates that if the temporary changes for 2008 expire, then the number
of taxpayers subject to the AMT will increase from 4.1 million to over 30 million in 2009.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŖȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
under the AMT, thus reducing the number of taxpayers with capital gains income subject to the
AMT.25
Both the number of AMT taxpayers and AMT tax revenue steadily increased after 1988 with a
slight dip in 2001 due to the 2001 recession and tax changes in the Economic Growth and Tax
Relief Reconciliation Act of 2001. Increasing income inequality since 1980 is correlated with
AMT taxpayers as a percentage of all taxpayers; the estimated correlation is 0.714 and is
statistically significant. The Gini coefficient, however, is not correlated with AMT revenues as a
percentage of total income tax revenues (the estimated correlation is 0.339 and is not statistically
significant).
Figure 8. AMT Revenues as a Percentage of Total Individual Tax Revenues and AMT
Taxpayers as a Percentage of All Individual Taxpayers

Source: Tax Policy Center.
–™•’ŒŠ?’˜—œȱ˜?ȱ —ŽšžŠ•’?¢ȱ?˜›ȱŠ¡ȱ˜•’Œ¢ȱ
The regular individual income tax, the individual alternative minimum tax, and the payroll tax all
have different tax bases and tax parameters. On the one hand, many of the parameters of the
regular income tax and the payroll tax are annually updated for inflation and average earnings
growth, respectively. On the other hand, the parameters of the AMT are not indexed at all. To
illustrate how rising income and earnings inequality can interact with the various forms of
indexation, the University of Michigan’s Panel Study of Income Dynamics is employed.26

25 See CRS Report RL30149, The Alternative Minimum Tax for Individuals, by Steven Maguire.
26 The Panel Study of Income Dynamics (PSID) is a nationally representative longitudinal data set of the U.S.
(continued...)
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŗȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
Table 1 shows the distribution of income among families in eight income categories for selected
years between 1982 and 2004. The percentages displayed in the table show the share of aggregate
total family income (realized capital gains are omitted from this measure) for all the families with
annual income in the indicated income category or bracket. There are three scenarios:
• Scenario 1: the income bracket cutoffs remain fixed at the 1982 levels shown in
the first column of the table.
• Scenario 2: the income bracket cutoffs are indexed to inflation in much the same
way many of the regular individual income tax parameters are indexed. For
example, by 2004, the cutoff for the first income bracket (denoted “Less than
$10,000” in the table) had increased to $19,575.
• Scenario 3: the income bracket cutoffs are indexed to average earnings growth in
much the same way the maximum taxable limit for the Social Security payroll
tax is indexed. For example, the cutoff for the first income bracket had increased
to $24,532 by 2004.
Panel A of Table 1 shows how income shares have changed between 1982 and 2004 under
scenario 1. The share of income to families in the first income category fell from 4.8% in 1982 to
0.6% by 2004.27 At the other end of the income distribution, the share of aggregate income
received by those in the highest income category ($120,000 or more) increased from 5.2% to
43.3% between 1982 and 2004.28 In general, income shifted from the lower-income categories to
the higher-income categories between 1982 and 2004. Consequently, in the case of a tax system
with fixed parameters, such as the AMT, more income and more taxpayers will be subject to the
tax over time because of income growth and rising income inequality.
Table 1. Income Shares for Selected Years
1982
Income
Categories
1982 1986 1990 1994 1998 2004
A. Fixed Income Ranges
Less
than
$10,000
4.8 2.4 2.0 1.8 1.0 0.6
$10,000
to
$19,999
14.5 9.4 7.4 5.9 3.9 2.7
$20,000 to $29,999
19.9
14.3
10.5
8.9
6.9
4.4
$30,000
to
$44,999
25.4 22.4 17.3 15.7 11.6 8.6
$45,000
to
$59,999
14.4 16.4 17.1 13.3 11.4 9.4
$60,000
to
$79,999
9.6 13.3 14.0 15.8 13.3 11.9

(...continued)
population that has been ongoing since 1968. The replacement mechanism of the PSID for births is designed to yield a
representative sample of the nonimmigrant population in each year. The PSID oversamples low-income households
because it was created by combining the Survey of Economic Opportunity (SEO), a survey of low-income households,
with a representative group of households from the Survey Research Center (SRC) national sampling frame.
Consequently, family weights are used throughout the analysis. See Martha S. Hill, The Panel Study of Income
Dynamics: A User’s Guide (Newbury Park, CA: Sage Publications, 1992).
27 The share of families in the lowest income category also fell from 24.4% in 1982 to 9.4% in 2004. See Appendix B
for the distribution of families across the income categories for the selected years.
28 The percentage of families in the top income category also increased from 0.8% to 12.4% between 1982 and 2004.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŘȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
1982
Income
Categories
1982 1986 1990 1994 1998 2004
$80,000
to
$119,000
6.1 12.1 15.7 16.0 18.8 19.1
$120,000 or more
5.2
9.8
15.9
22.7
33.0
43.3
B. Income Ranges Keep Pace with Inflation
Less
than
$10,000
4.8 3.3 4.1 4.5 3.3 3.5
$10,000
to
$19,999
14.5 11.8 12.7 12.8 11.4 10.4
$20,000
to
$29,999
19.9 17.2 15.8 15.7 13.6 12.4
$30,000
to
$44,999
25.4 23.5 22.3 20.1 17.8 17.9
$45,000
to
$59,999
14.4 16.0 14.5 13.4 13.9 13.1
$60,000
to
$79,999
9.6 11.0 11.4 11.7 11.7 11.2
$80,000
to
$119,000
6.1 9.2 9.4 8.3 10.6 10.9
$120,000 or more
5.2
7.8
9.9
13.5
17.7
20.6
C. Income Ranges Keep Pace with Income growth
Less
than
$10,000
4.8 3.6 4.7 5.0 4.9 5.8
$10,000
to
$19,999
14.5 13.3 14.0 14.1 14.3 14.3
$20,000
to
$29,999
19.9 17.5 17.0 16.4 15.4 15.6
$30,000
to
$44,999
25.4 24.9 23.4 20.6 19.2 19.2
$45,000
to
$59,999
14.4 14.8 14.1 13.4 12.8 11.4
$60,000 to $79,999
9.6
10.4
10.4
10.4
10.6
8.9
$80,000
to
$119,000
6.1 8.7 7.6 7.6 7.5 9.4
$120,000 or more
5.2
6.8
8.9
12.4
15.2
15.4
Source: Author’s analysis of the PSID.
The income shares for selected years under scenario 2 (when the income category cutoffs are
indexed to inflation) are shown in panel B of Table 1. Over time income tends to shift from the
lower income categories to the higher income categories, but not to the same extent as when the
category cutoffs are fixed in nominal terms (see panel A), since income tends to increase faster,
on average, than prices over time. The percentage of aggregate income of families in the top
income bracket more than tripled between 1982 and 2004, from 5.2% to 20.6%.29 Even when tax
parameters, such as exemptions and tax brackets for the regular income tax, are indexed to
inflation, income growth and rising inequality will lead to more income being taxed and at higher
marginal tax rates over time.
The results for scenario 3, with the income category cutoffs indexed to average earnings growth,
are displayed in panel C of Table 1. Even under scenario 3, there is some evidence of income
shifting up to higher income categories. Most of the shift, however, appears to be from the middle
income categories toward the higher categories. The percentage of income in the bottom two
categories remained fairly steady at about 20% between 1982 and 2004. The share of income of
the next four categories ($20,000 up to $79,999) fell from about 70% in 1982 to 55% by 2004.

29 The percentage of families in this bracket increased from 0.8% to 3.2%. See panel B in Appendix B.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗřȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
The share for the top two categories increased over this period from 11% to almost 25%, with the
share of income received by families in the top income category increasing from 5.2% to 15.4%.
The distribution of individual earnings for the selected years under the three scenarios is reported
in Table 2.30 Although the earnings categories or brackets are different from the income
categories in Table 1, the results reported in panel A are broadly similar to the results for family
income. With inflation-indexed earnings bracket cutoffs, there is a general shifting of aggregate
earnings toward the higher earnings categories over time (see panel B in Table 2).
Table 2. Earnings Shares for Selected Years
1982
Earnings
Categories
1982 1986 1990 1994 1998 2004
A. Fixed Income Ranges
Less than $10,000
11.4
7.1
5.3
3.7
2.9
2.1
$10,000 to $14,999
12.1
9.3
6.3
5.0
3.1
2.3
$15,000 to $19,999
14.4
10.4
8.9
6.4
4.6
3.0
$20,000 to $24,999
13.4
11.2
9.0
8.0
6.0
3.8
$25,000 to $29,999
11.9
11.4
9.9
8.8
6.3
5.0
$30,000
to
$39,999
15.3 18.3 16.7 15.6 14.1 11.1
$40,000
to
$54,999
10.3 13.7 18.3 16.2 17.5 14.9
$55,000
or
more
11.3 18.6 25.6 36.3 45.5 57.9
B. Income Ranges Keep Pace with Inflation
Less than $10,000
11.4
9.8
9.8
8.8
8.0
8.0
$10,000 to $14,999
12.1
12.1
12.2
10.4
9.8
9.5
$15,000
to
$19,999
14.4 12.0 13.1 12.9 11.2 11.8
$20,000
to
$24,999
13.4 13.1 12.1 11.5 12.6 9.9
$25,000
to
$29,999
11.9 11.9 11.6 10.4 10.1 8.7
$30,000
to
$39,999
15.3 16.1 15.3 14.4 12.2 11.1
$40,000 to $54,999
10.3
10.3
9.4
11.8
14.2
11.0
$55,000
or
more
11.3 14.7 16.5 19.7 21.9 30.0
C. Income Ranges Keep Pace with Income growth
Less than $10,000
11.4
10.2
11.2
9.8
10.6
12.2
$10,000
to
$14,999
12.1 12.6 12.5 11.3 12.4 13.7
$15,000
to
$19,999
14.4 13.2 14.0 14.1 14.0 13.3
$20,000
to
$24,999
13.4 13.4 14.5 12.6 12.3 10.2
$25,000 to $29,999
11.9
12.1
9.9
9.2
8.6
7.0
$30,000
to
$39,999
15.3 15.1 14.3 15.2 13.4 10.4

30 Earnings includes wage and salary income and earnings from self-employment.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŚȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
1982
Earnings
Categories
1982 1986 1990 1994 1998 2004
$40,000 to $54,999
10.3
10.0
8.6
9.6
11.3
8.7
$55,000
or
more
11.3 13.5 15.1 18.2 17.4 24.4
Source: Author’s analysis of the PSID.
The Social Security maximum taxable limit is indexed to average earnings growth. The final
panel of Table 2 (panel C) reports the distribution of earnings among the earnings categories
under scenario 3 where the bracket cutoffs are indexed for average earnings growth. The
proportion of earnings received by workers in the four lowest earnings categories remains almost
the same between 1982 (51.3%) and 2004 (49.4%). The proportion received by workers in the
next three categories fell from 37.5% in 1982 to 26.1% in 2004. Lastly, the share of aggregate
earnings received by workers in the top earnings category increased from 11.3% in 1982 to 24.4%
in 2004. Overall, the share of aggregate earnings received by workers with annual earnings above
the maximum taxable limit increased from 29.5% to 38.2% between 1982 and 2004.
Consequently, even indexing the maximum taxable limit to average earnings growth, the
proportion of covered earnings that are taxable will fall when earnings inequality is rising.
˜—Œ•ž?’—?ȱŽ–Š›”œȱ
Income and earnings inequality have steadily increased since 1980. Research has demonstrated
that rising inequality is due to those at the top of the income distribution pulling away from those
lower down in the distribution—the rich are getting richer, but the poor appear to be holding their
own. Since various federal taxes have different tax bases, tax rates, adjustments to income, and
methods for updating the tax parameters over time, changing income inequality can have different
effects on who pays the different taxes, and how much they pay. The two major components of
the U.S. federal tax system are the individual income tax and the Social Security payroll tax.
Additionally, the individual income tax system consists of the regular income tax and the
alternative minimum tax (AMT).
In order to help protect taxpayers from bracket creep, many of the parameters of the regular
income tax are indexed to inflation. Nevertheless, with income growing faster than prices and
rising income inequality, more income is pushed into higher tax brackets. Individual income tax
revenues as a percentage of GDP, however, do not appear to be associated with rising inequality,
because the income tax has become less progressive as inequality has increased (that is, the top
marginal tax rates have fallen).
The parameters of the AMT are not indexed, but rather are fixed in nominal terms. Consequently,
the amount of income and the number of taxpayers subject to the AMT will increase dramatically
over time because of income growth and rising income inequality in the absence of legislative
changes. The actual increase in AMT taxpayers has been limited because of a series of enacted
temporary “patches.”
Although the maximum taxable limit of the payroll tax is indexed for average earnings growth,
rising earnings inequality has pushed more and more of covered earnings above the limit. Thus,
the proportion of covered earnings that is taxable has fallen over the past 25 years.
Rising income inequality can be ameliorated through the tax system and government transfers.
Transfers to the poor and a progressive tax system can help limit rising inequality. But, given that
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗśȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
the parameters of the various components of the tax systems differ, using the tax system to
reverse rising inequality would argue in favor of a comprehensive understanding of how
inequality affects the various components and how the various components interact with each
other.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŜȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
™™Ž—?’¡ȱǯ Š›Š–Ž?Ž›œȱ?˜›ȱ?‘Žȱ —?’Ÿ’?žŠ•ȱ —Œ˜–Žȱ
Š¡ȱ
Personal Exemptions
Deductions
Year
as Percentage
Range of
Lowest
Highest
Single
Married
of AGI
Tax Rates
Bracket
Bracket
1980 $1,000 $2,000
22.6%
14.0%-70.0% $3,400 $215,400
1981 1,000 2,000
22.6
13.825-69.125 3,400 215,400
1982 1,000 2,000
23.0
12.0-50.0 3,400 85,600
1983 1,000 2,000
23.1
11.0-50.0 3,400 109,400
1984 1,000 2,000
23.3
11.0-50.0 3,400 162,400
1985 1,040 2,080
24.1
11.0-50.0 3,540 169,020
1986 1,080 2,160
24.6
11.0-50.0 3,670 175,250
1987 1,900 3,800
21.9
11.0-38.5 3,000 90,000
1988 1,950 3,900
22.3
15.0-28.0 29,750 29,750
1989 2,000 4,000
22.7
15.0-28.0 30,950 30,950
1990 2,050 4,100
23.2
15.0-28.0 32,450 32,450
1991 2,150 4,300
23.6
15.0-31.0 34,000 82,150
1992 2,300 4,600
23.4
15.0-31.0 35,800 86,500
1993 2,350 4,700
23.4
15.0-39.6 36,900 250,000
1994 2,450 4,900
22.8
15.0-39.6 38,000 250,000
1995 2,500 5,000
22.5
15.0-39.6 39,000 256,500
1996 2,550 5,100
22.0
15.0-39.6 40,100 263,750
1997 2,650 5,300
21.4
15.0-39.6 41,200 271,050
1998 2,700 5,400
21.0
15.0-39.6 42,350 278,450
1999 2,750 5,500
20.6
15.0-39.6 43,050 283,150
2000 2,800 5,600
20.3
15.0-39.6 43,850 288,350
2001 2,900 5,800
22.1
15.0-39.1 45,200 297,350
2002 3,000 6,000
23.0
10.0-38.6 12,000 307,050
2003 3,050 6,100
23.5
10.0-35.0 14,000 311,950
2004 3,100 6,200
23.0
10.0-35.0 14,300 319,100
2005 3,200 6,400
22.6
10.0-35.0 14,600 326,450
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŝȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
™™Ž—?’¡ȱǯ ’œ?›’‹ž?’˜—ȱ˜?ȱŠ–’•’Žœȱ
1982
Income
Categories
1982 1986 1990 1994 1998 2004
A. Fixed Income Ranges
Less
than
$10,000
24.4 19.5 16.3 16.4 12.3 9.4
$10,000
to
$19,999
24.8 20.3 19.2 17.0 14.5 12.6
$20,000
to
$29,999
20.2 18.5 16.4 15.4 14.9 12.2
$30,000
to
$44,999
17.5 19.4 18.1 18.4 17.1 16.0
$45,000
to
$59,999
7.0 10.2 12.6 11.1 12.0 12.3
$60,000
to
$79,999
3.6 6.3 7.9 9.9 10.5 11.7
$80,000
to
$119,000
1.6 4.1 6.4 7.2 10.7 13.4
$120,000
or
more
0.8 1.6 3.1 4.5 8.1 12.4
B. Income Ranges Keep Pace with Inflation
Less
than
$10,000
24.4 22.3 23.3 25.7 21.9 21.7
$10,000
to
$19,999
24.8 22.6 24.4 24.2 24.7 22.9
$20,000
to
$29,999
20.2 19.8 18.1 18.0 17.6 17.3
$30,000
to
$44,999
17.5 18.1 17.1 15.6 15.6 15.9
$45,000
to
$59,999
7.0 8.8 8.0 7.4 8.7 9.3
$60,000
to
$79,999
3.6 4.5 4.8 4.9 5.5 5.8
$80,000
to
$119,000
1.6 2.8 2.8 2.5 3.6 3.9
$120,000
or
more
0.8 1.1 1.5 1.7 2.4 3.2
C. Income Ranges Keep Pace with Income growth
Less
than
$10,000
24.4 22.9 24.9 27.1 26.7 28.1
$10,000
to
$19,999
24.8 24.3 25.3 25.4 26.7 25.6
$20,000
to
$29,999
20.2 19.2 18.4 17.8 17.2 17.2
$30,000
to
$44,999
17.5 18.3 16.9 15.0 14.3 14.5
$45,000
to
$59,999
7.0 7.8 7.2 7.0 6.8 6.3
$60,000
to
$79,999
3.6 4.1 4.0 4.1 4.3 3.7
$80,000
to
$119,000
1.6 2.5 2.1 2.1 2.2 2.9
$120,000
or
more
0.8 0.9 1.2 1.5 1.8 1.7
Source: Author’s analysis of the PSID.
˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗŞȱ

—Œ˜–Žȱ —ŽšžŠ•’?¢ȱŠ—?ȱ?‘ŽȱǯǯȱŠ¡ȱ¢œ?Ž–ȱ
ȱ
™™Ž—?’¡ȱǯ ’œ?›’‹ž?’˜—ȱ˜?ȱ˜›”Ž›œȱ
1982
Earnings
Categories
1982 1986 1990 1994 1998 2004
A. Fixed Income Ranges
Less
than
$10,000
44.1 34.8 30.2 24.7 23.0 20.4
$10,000 to $14,999
15.1
14.8
12.1
11.3
8.5
8.0
$15,000 to $19,999
12.7
11.9
12.2
10.5
9.1
7.4
$20,000 to $24,999
9.2
9.9
9.5
10.2
9.1
7.3
$25,000
to
$29,999
6.7 8.2 8.6 9.2 7.8 8.0
$30,000 to $39,999
7.0
10.5
11.6
12.9
13.8
13.9
$40,000 to $54,999
3.4
5.8
9.3
10.0
12.7
13.8
$55,000 or more
1.9
4.1
6.6
11.3
16.1
21.4
B. Income Ranges Keep Pace with Inflation
Less
than
$10,000
44.1 39.7 39.4 36.2 35.8 35.6
$10,000
to
$14,999
15.1 16.6 16.9 15.9 15.4 15.2
$15,000
to
$19,999
12.7 11.8 12.8 14.1 12.6 13.8
$20,000 to $24,999
9.2
10.0
9.3
9.8
11.1
9.7
$25,000
to
$29,999
6.7 7.4 7.3 7.3 7.2 6.9
$30,000
to
$39,999
7.0 8.0 7.6 7.9 7.0 7.7
$40,000
to
$54,999
3.4 3.8 3.5 4.9 6.1 5.2
$55,000
or
more
1.9 2.8 3.2 3.9 4.8 6.0
C. Income Ranges Keep Pace with Income growth
Less
than
$10,000
44.1 40.4 41.6 38.0 40.5 42.8
$10,000
to
$14,999
15.1 16.9 16.5 16.3 16.9 18.6
$15,000
to
$19,999
12.7 12.5 13.1 14.6 13.7 13.2
$20,000 to $24,999
9.2
9.8
10.5
10.1
9.4
8.6
$25,000
to
$29,999
6.7 7.3 5.8 6.1 5.4 4.4
$30,000
to
$39,999
7.0 7.2 6.8 7.9 6.6 5.0
$40,000
to
$54,999
3.4 3.5 3.0 3.7 4.2 3.8
$55,000
or
more
1.9 2.4 2.8 3.4 3.3 3.7
Source: Author’s analysis of the PSID.

ž?‘˜›ȱ˜—?ŠŒ?ȱ —?˜›–Š?’˜—ȱ

Thomas L. Hungerford

Specialist in Public Finance
thungerford@crs.loc.gov, 7-6422

˜—?›Žœœ’˜—Š•ȱŽœŽŠ›Œ‘ȱŽ›Ÿ’ŒŽȱ
ŗşȱ