Center on Budget and Policy Priorities, March 27, 2008: New Data Show Income Concentration Rose Again in 2006
By Aviva Aron-Dine
Economists Thomas Piketty and Emmanuel Saez recently issued an updated version of their
groundbreaking data series on income inequality in the United States.1 The data, which are based on
Internal Revenue Service (IRS) files, are unique because they provide detailed information on
income gains at the top of the income scale, extend back to 1913, and provide the first detailed look
at the distribution of income in 2006.
The new data show:
• Between 2005 and 2006, the average income (before taxes) of the top 1 percent of households
increased by $73,000 (or 7 percent), after adjusting for inflation,2 while the average income of
the bottom 90 percent of households increased by just $20 (or 0.1 percent). (In 2006, the top 1
percent of households were those with incomes above about $375,000.)
• 2006 marked the fourth straight year in which income gains at the top outpaced those among
the rest of the population. Since 2002, the
average income of the top 1 percent of
households has risen 44 percent, or
$335,000, after adjusting for inflation. The
average income of the bottom 90 percent
of households has risen about 3 percent, or
about $1,000. (See Table 1.)
• As a result, the share of the nation۪s
income flowing to the top 1 percent has
increased sharply, rising from 15.8 percent
in 2002 to 20.3 percent in 2006. Not since
1928, just before the Great Depression, has
the top 1 percent held such a large share of
the nation۪s income. (See Figure 1.) In
2000, at the peak of the 1990s boom, the
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FIGURE 1
0%
5%
10%
15%
20%
25%
1913
1916
1919
1922
1925
1928
1931
1934
1937
1940
1943
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
Income Share of Highest Income Households At
Highest Level Since 1928
Share of Total Pre-Tax Income Flowing to Top 1 Percent
Source: Thomas Piketty and Emmanuel Saez, based on IRS data
2
top 1 percent received 19.3 percent of total income in the nation.3
• Income gains have been even more pronounced among those at the very top of the top 1
percent. The incomes of the top one-tenth of 1 percent (0.1 percent) of U.S. households have grown
more rapidly than the incomes of the top 1 percent of households as a whole, rising by 60
percent, or $1.9 million per household, since 2002. The share of the nation۪s income flowing to
the top one-tenth of 1 percent increased from 6.5 percent in 2002 to 9.3 percent in 2006. This
is the highest level since 1928.
The uneven distribution of economic gains in
recent years continues a longer-term trend that
began in the late 1970s. In the three decades
following World War II (1946-1976), robust
economic gains were shared widely, with the
incomes of the bottom 90 percent actually
increasing more rapidly, on average, than the
incomes of the top 1 percent. But in the three
decades since 1976, the incomes of the bottom
90 percent of households have risen only
slightly, on average, while the incomes of the
top 1 percent have soared.4 (See Figure 2.)
Given that the economy appears to be
entering a recession or a significant slowdown,
and given the turmoil in the financial markets, it
seems possible that the income share of the top 1 percent will fall this year, and perhaps for several
years after that. In this context, it is instructive to note how the distribution of income changed
during and after the last recession. The Piketty and Saez data show that the incomes of nearly all
groups fell in 2001 and 2002. Since the incomes of those at the top of the income scale fell by the
largest percentage, their share of total income in the nation declined.
In 2003, however, when income growth resumed, income concentration again began to rise.
Some 45 percent of total income gains since 2002 have accrued to the top 1 percent of households,
and 70 percent have gone to the top 10 percent of households. As a result, by 2006, the share of
income flowing to the top 1 percent of households had surpassed the level it reached in 2000, at the
peak of the 1990s expansion.
Table 1: Income Gains, Adjusted for Inflation, 2002-2006
Dollar Increase Percentage
Increase
Bottom 90% $1,000 3%
Next 9% $16,000 11%
Top 1% $335,000 44%
In 2006, the bottom 90 percent of households were those with incomes below about
$105,000. The next 9 percent were those with incomes between $105,000 and about
$375,000, and the top 1 percent were those with incomes above $375,000.
FIGURE 2
Uneven Distribution of Gains Since Late 1970s Different
From Earlier Era, When Growtth Was Widely Shared
90%
64%
92%
10%
25%
239%
0%
50%
100%
150%
200%
250%
300%
1946-1976 1976-2006
Per-Capita National Income
Avg. Income, Bottom 90% of Households
Avg. Income, Top 1% of Households
Cumulative Percent Growth
Source: CBPP calculations based on data from economists Thomas Piketty &
Emmanuel Saez & BEA and Census data. Adjusted for inflation using CPI-RS.
3
1 Piketty and Saez rely on detailed Internal Revenue Service micro-files for most years, but use more aggregated IRS data
and statistical techniques to extend their series back to 1913 and forward to 2006 (years for which detailed micro-files are
not available). For details, see Thomas Piketty and Emmanuel Saez, “Income Inequality in the United States: 1913-
1998,” Quarterly Journal of Economics, February 2003, or, for a less technical summary, see
http://elsa.berkeley.edu/~saez/saez-UStopincomes-2006prel.pdf. The updated series is available at
http://elsa.berkeley.edu/~saez/TabFig2006prel.xls.
2 Piketty and Saez adjust for inflation using the standard Consumer Price Index, while we use the CPI-Research Series.
The CPI-RS is generally considered more accurate for purposes of comparisons over long periods, such as those shown
in Figure 2.
3 Piketty and Saez present three different data series, each of which uses a different income concept, and therefore yields
somewhat different estimates of the share of income going to each group. (For example, estimates of the share of
income going to the top 1 percent in 2006 range from 18.2 percent in one series to 20.3 percent in the series we rely on
here to 22.9 percent in the third series.) We focus on the series that includes capital gains income in measuring the
income households receive, but ranks households according to their non-capital gains income. The authors indicate that
this approach to sorting households gets around the volatility associated with capital gains realizations and provides a
better measure of the underlying distribution of income than a measure that sorts households according to income
including capital gains. But the authors also present a data series that includes capital gains income and ranks households
by income including capital gains, as well as a series that excludes capital gains altogether. In 2006, under both income
concepts that include capital gains income, the share of income flowing to the top 1 percent was at its highest level since
1928. Under the income concept that excludes capital gains, the income share going to the top 1 percent was at the
highest level since 1929.
4 Different data series show modestly larger or smaller gains for the bottom 90 percent, but all series show a similar
discrepancy between the bottom 90 percent and the top 1 percent.