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Study Details Income Gap Between Rich and Poor


WASHINGTON, May 30 -- The wealthiest households had income gains over the last two decades that far outstripped those of households at the other end of the spectrum, but the relative tax burden of people with the highest incomes also increased substantially, new government figures show.

In a comprehensive look at incomes and taxation, the Congressional Budget Office found that the share of pretax income going to the top 20 percent of households rose to 53.2 percent in 1997 from 45.9 percent in 1979. In that period, the share of income going to the bottom 60 percent fell to 26.9 percent from 32.2 percent. For the bottom 20 percent, the share of income fell to 4 percent in 1997 from 5.3 percent in 1979.

During the 18 years covered by the study, pretax and after-tax income increased for all except the bottom 20 percent of households.

Average pretax income among the top 1 percent increased 142 percent, to $1.02 million in 1997 from $420,200 in 1979. Among the top 20 percent of households, average pretax income rose 52.9 percent, to $167,500 from $109,500.

But pretax income for the lowest 20 percent of households declined 3.4 percent, to $11,400 in 1997 from $11,800 in 1979. All figures are adjusted for inflation.

The budget office released its study last week, and its findings generally tracked other research into the gap between rich and poor. "The distribution of income among households grew substantially more unequal during the 1979-1997 period," the budget office said.

An analysis of the budget office study released today by the Center on Budget and Policy Priorities, a liberal research group, reached a similar conclusion. The group said that "income gaps between rich and poor and between the rich and middle class widened in the 1980's and 1990's alike and reached their widest point on record in 1997."

Income inequality is among the most politically charged of issues. Some economists, especially conservatives, say income distribution figures exaggerate the problem because they do not consider mobility -- that is, the fact that many people who have low incomes at one point in their lives earn substantially more and move up the income ladder.

Conservatives also say that the real issue is not the distribution of income but whether people at all levels are better off.

Confirming with statistics what common sense suggests, the study found that most people benefited from the generally strong economy of the last 20 years, with 80 percent of the nation's 103 million households enjoying income gains.

Average pretax income for all households rose to $62,400 in 1997 from $48,500 in 1979, an increase of 28.7 percent. For the middle 20 percent, income rose to $45,100 from $41,400, a gain of 8.9 percent.

As they have earned more, upper- income households have assumed a larger share of total federal tax liabilities. The top 20 percent of households paid 64.7 percent of taxes in 1997, up from 57.1 percent in 1979.

The top 1 percent of households -- about one million of them -- paid 23 percent of total federal taxes in 1997, up from 15.5 percent in 1979.

The top 1 percent of households, representing 15.8 percent of pretax income, paid 32.9 percent of individual federal income taxes in 1997. In 1979, the top 1 percent, representing 9.3 percent of pretax income, paid 18.7 percent of income taxes.

The poorest households benefited from changes in tax policy that reduced their tax bills and in many cases provided larger cash payments to working families through the earned-income tax credit. The share of tax payments of the bottom 20 percent of households declined to 1 percent in 1997 from 1.9 percent in 1979.

Partly because of the tax changes during the last decade, after-tax income among the poorest 20 percent of households rebounded somewhat in the 1990's after falling during much of the 1980's. After-tax income rose to $10,800 in the bottom 20 percent of households in 1997, from $10,400 in 1991. The figure was $10,900 in 1979.

The share of total taxes fell for the middle 60 percent of households and the bottom 20 percent, in part because of the 1993 tax increase on upper-income people. The share of tax payments for the middle 20 percent of households declined to 10.7 percent from 12.9 percent.

But the effective tax rates fell for all income groups over the 18 years covered by the study. The tax rate for the bottom 20 percent of households fell to 5.6 percent in 1997 from 8.1 percent in 1979, while the effective tax rate for the top 20 percent of households by income declined slightly, to 27.7 percent from 27.8 percent. For the top 1 percent, the effective tax rate fell to 33.3 percent from 37.3 percent.

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