December 14, 2004
In 2002, the Census reported that the top 20 percent (quintile) of households held about 50 percent of the national income, while the bottom quintile held 3.5 percent. In other words, the top earners had about $14.20 of income for every $1.00 at the bottom. However, the Heritage Foundation says these results do not account for a number of factors.
- After-tax/post-benefit incomes: the top quintile pays 82 percent of total federal income taxes, while lower income earners pay 1 percent and receive the bulk of social safety net benefits.
- Household size: the top quintile accounts for 25 percent of the population, while the bottom quintile has 14 percent.
- Work performed: the top quintile performs over a third of all paid labor while the bottom performs only 4.3 percent.
When taking these differences into account, the Heritage Foundation found that the income distribution gap in the United States is not as large as commonly thought:
- Adjusting income for taxes and benefits, the top quintile has $8.60 for each $1.00 at the bottom.
- Controlling for such factors as taxes and benefits, the top 20 percent of earners have $4.20 of income for every $1.00 at the bottom.
- Accounting for work hours on top of these other factors, the top quintile earns $2.91 in income for every $1.00 at the bottom.
Source: Robert Rector and Rea Hederman, Jr., "Two Americas: One Rich, One Poor? Understanding Income Inequality in the United States," Backgrounder #1791, Heritage Foundation, August 24, 2004.
Browse more articles on Economic Issues