**Economists Thomas Piketty and Emmanuel Saez recently issued an updated version of their groundbreaking data series on income inequality in the United States. 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, 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.

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. 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.