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The Rising Costs of US Income Inequality

Although the economic costs of income inequality are substantial, the political costs may prove to be the most damaging and dangerous. Indeed, in the US, income inequality has risen to levels that threaten not only the economy’s growth, but also the health of its democracy.

BERKELEY – During the last several decades, income inequality in the United States has increased significantly – and the trend shows no sign of reversing. The last time inequality was as high as it is now was just before the Great Depression. Such a high level of inequality is not only incompatible with widely held norms of social justice and equality of opportunity; it poses a serious threat to America’s economy and democracy.

Underlying the country’s soaring inequality is income stagnation for the majority of Americans. With an expanding share of the gains from economic growth flowing to a tiny fraction of high-income US households, average family income for the bottom 90% has been flat since 1980. According to a recent report by the Council of Economic Advisers, if the share of income going to the bottom 90% was the same in 2013 as it was in 1973, median annual household income (adjusted for family size) would be 18%, or about $9,000, higher than it is now.

The disposable (after tax and transfer) incomes of poor families in the US have trailed those of their counterparts in other developed countries for decades. Now the US middle class is also falling behind.

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