WASHINGTON, July 25 — The figure that matters: 0.494. That was the Gini coefficient for pre-tax money income in the United States in 2021, the highest on record from the Census Bureau, climbing from 0.485 in 2018 and 0.488 in 2020. The gauge, where zero equals perfect equality and one equals maximum inequality, tells a stark story of a nation that has surged past its post-industrial peers in income disparity — especially after taxes and transfers are factored in.
The bottom line: America’s rich-poor gap has been widening for decades, with the top 1% now taking home roughly 30 times the income of the middle quintile. By the numbers, average market income in 2016 stood at $15,600 for the lowest fifth of earners and $280,300 for the highest fifth.
The top 1% alone averaged $1.8 million. Compare that to the middle quintile’s $59,300.
The long arc from the Great Compression to the Great Divergence
Income inequality in the U.S. has seesawed since measurement began around 1915. It peaked in the 1920s and again in the 2000s. A relatively equal period from roughly 1950 to 1980 is known as the Great Compression.
What followed — rising inequality — economists call the Great Divergence. The Congressional Budget Office’s 2016 data shows a market-income Gini of 0.59, which drops to 0.42 after taxes and transfers — proof that the system is progressive, but not enough to keep the U.S. from ranking highest among developed peers.
The top 1%’s share of market income rose from 9.6% in 1979 to a peak of 20.7% in 2007, then fell to 17.5% by 2016. After accounting for taxes and transfers, those shares were 7.4%, 16.6%, and 12.5% respectively. That post-transfer decline is real, but the pre-tax trajectory remains steep.
What drives the gap — and what it costs
The source material identifies several causes: increased executive compensation relative to workers, the financialization of the economy, greater industry concentration, lower unionization rates, lower effective tax rates on higher incomes, and technology that richly rewards college degrees. The effects include slower GDP growth, reduced income mobility, higher poverty rates, and rising household debt — factors that can trigger financial crises. Political polarization is also listed as a downstream consequence.
U.S. tax and transfer policies do reduce effective inequality. Lowest earners with dependents typically pay no income taxes and may receive subsidies through the Earned Income Tax Credit and child credits.
Yet the $15 ice cream has become a symbol of the growing wealth gap — a tangible marker of how spending power diverges between income groups.
What to watch next
Investors will note that the inequality trajectory is baked into long-term structural trends — executive pay, union density, tax policy — none of which appear headed for a quick reversal. Policymakers continue to debate whether further tax credits or changes to the tax code can meaningfully bend the Gini curve. With record-level Census Bureau readings as recently as 2021, the Great Divergence shows no signs of ending on its own.
