Economic Research: How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide
help offset the growing divide in educational opportunities and outcomes, broadening the pathways for our future
leaders, to the benefit of all.
That said, some degree of rebalancing--along with spending in the areas of education, health care, and infrastructure, for example--could help bring under control an income gap that, at its current level, threatens the stability of an economy still struggling to recover. This could take the form of reallocating fiscal resources toward those with a greater propensity to spend, or toward badly needed public resources like roads, ports, and transit. Further, policies that foster job-rich recoveries may help make growth more sustainable, especially given that rising unemployment correlates with rising income concentration. Additionally, effective investments in health and education promote
durable growth and equity, strengthening the labor force's capacity to cope with new technologies.
The challenge now is to find a path toward more sustainable growth, an essential part of which, in our view, is pulling more Americans out of poverty and bolstering the purchasing power of the middle class. A rising tide lifts all
boats...but a lifeboat carrying a few, surrounded by many treading water, risks capsizing.
Writer: Joe Maguire
Glossary Of Relevant Terms
Market income
Based on CBO analysis, market income includes the following components:
co Labor income: cash wages and salaries (including 401(k) plans), employer-paid health insurance premiums, and the employer's share of Social Security, Medicare, and federal unemployment insurance payroll taxes.
co Business income: net income from businesses and farms operated solely by their owners, partnership income, and income from S corporations.
co Capital gains: profits realized from the sale of assets. Increases in the value of assets that have not been realized through sales are not included in market income.
co Capital income (excluding capital gains): taxable and tax-exempt interest, dividends paid by corporations (excluding S corporations), positive rental income, and corporate income taxes. The CBO assumes that corporate income taxes are borne by owners of capital in proportion to their income from capital, so the corporate tax is included in household income before taxes.
co Other income: retirement income for past services and any other sources of income.
Transfer income
Transfer income includes cash payments from Social Security, unemployment insurance, Supplemental Security Income, Aid to Families with Dependent Children, Temporary Assistance for Needy Families, veterans' benefits, workers' compensation, and state and local government assistance programs, as well as the value of in-kind benefits, including food stamps, school lunches and breakfasts, housing assistance, energy assistance, Medicare, Medicaid, and the Children's Health Insurance Program (health benefits are measured as the fungible value, a Census Bureau
estimate of the value to recipients).
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