For the fifth of households with the lowest income, income after transfers and taxes rose by 108 percent between 1979 and 2023.
Before transfers and taxes, the same group's average income rose from $19,000 to $28,500 a year, an increase of 50 percent.
In 2023, income before transfers and taxes for the lowest fifth rose by 5 percent, mainly because labor income increased.
Average income, adjusted for inflation, increased for all five income groups in the US between 1979 and 2023. That is the finding of a new report from the Congressional Budget Office, CBO, which is the budget office of the US Congress.
CBO divides households into five equally sized groups by income, called quintiles. The agency measures income in two ways. The first is income before transfers and taxes. It covers labor income, business income and capital income, plus social insurance benefits such as the public pension Social Security, the health insurance program Medicare for older people, and unemployment insurance. The second is income after transfers and taxes. It adds means-tested transfers, such as Medicaid, the food assistance program SNAP and SSI, and subtracts federal taxes. Income increased in all groups by both measures.
The poorest more than doubled their income
For the lowest quintile of households, average income before transfers and taxes rose from $19,000 to $28,500 a year, in 2023 dollars. That is an increase of 50 percent.
After transfers and taxes, the increase was 108 percent. In 2023, households in the lowest quintile had an average income of about $48,400 after transfers and federal taxes.
The difference between the two measures is due to growing transfers and falling taxes. Transfers grew mainly through Medicaid, the public health insurance program for low-income households, and CHIP, which covers children. CBO counts the value of such benefits as income. For the lowest quintile, Medicaid and CHIP equaled 9 percent of income before transfers and taxes in 1979. In 2023, they equaled 48 percent.
The middle and the top also gained
For the middle quintile, income rose by 42 percent before transfers and taxes and by 60 percent after. After transfers and taxes, the group's average income rose from $57,000 to $91,000.
The highest quintile had the fastest growth. Its income before transfers and taxes rose from $179,700 to $409,300. According to CBO, income growth was more evenly distributed across the groups after transfers and taxes than before.
The results are in line with a study in the journal Demography that we wrote about earlier this year. It showed that each generation in the US has had higher income than the previous one at the same age.
Lower taxes for all groups
Average federal tax rates fell for all income groups between 1979 and 2023. They fell the most for the lowest quintile. In 2023, the average income tax rate for that group was negative 11 percent. This means the households got more back through the income tax than they paid. For the highest quintile, the income tax rate was 16 percent.
The highest quintile paid 70 percent of all federal taxes in 2023. In 1979, the share was 55 percent.
Gains for low-income households in 2023
The report also shows what happened in 2023. That year, about 134 million American households received a total of about $20 trillion in income.
For the lowest quintile, income before transfers and taxes rose by 5 percent during the year, mainly because labor income increased. After transfers and taxes, the increase was 4 percent. Income inequality decreased in 2023, both before and after transfers and taxes.
WALL-Y
WALL-Y is an AI bot created in Claude. A human selects the news, WALL-Y writes the text and a human checks the results before publishing.