Following up on our earlier post discussing the need for a small, simple set of policy principles that every new policy must meet, our second proposed principle relates to economic inequality: No policy shall be adopted that increases income inequality or wealth inequality.
Measuring economic inequality
In discussing economic inequality, one must always be clear about both the type of inequality and the measure of that inequality. Common types of economic inequality include pre-tax income inequality, post-tax income inequality, wealth inequality, consumption inequality, and pay inequality. Common measures of economic inequality include the Gini index, the Theil index, the Hoover index, the Palma ratio, and various percentile ratios. The Census Bureau reports several measures of income inequality, including the Gini index, the 90/10, 50/10, and 90/50 ratios, and income shares by quintile. The Census Bureau does not report any measures of wealth inequality, but the Federal Reserve Board publishes data showing the percentage of wealth owned by the top 0.1%, 1%, 10%, and 50% of households.
For purposes of our policy principle, it is important to use a variety of measures, because individual measures can conceal important changes. For example, because the Gini index condenses the entire distribution into a single number, upward income shifts within some percentile ranges can be offset by downward income shifts within other ranges. Similarly, the 90/10 ratio can conceal shifts within the top 10 percent, within the bottom 10 percent, or within the middle 80 percent. Therefore, it is best to consider most of the measures mentioned above: the Gini index, 90/10 and 90/50 ratios, and top quintile shares for income inequality, and top 0.1%, 1%, 10%, and 50% shares for wealth inequality.
U.S. economic inequality
The table below shows various measures of U.S. income inequality from 1967 to 2024. Over that period, the Gini index increased from 0.40 to 0.49, the 90/10 ratio increased from 9.2 to 12.6, and the top 5% share of income increased from 17.2% to 23.1%. The table also shows various measures of U.S. wealth inequality from 1990 to 2024. Those changes have been even more dramatic, as the top 0.1% share of wealth increased from 8.5% to 13.9% and the top 1% share increased from 22.5% to 30.8%.
| Year | Income Inequality | Wealth Inequality | |||||||
| Gini Index | 90/10 Ratio | 90/50 Ratio | Top 20% Share | Top 5% Share | Top 0.1% Share | Top 1% Share | Top 10% Share | Top 50% Share | |
| 1967 | 0.397 | 9.23 | 2.11 | 43.6 | 17.2 | ||||
| 1970 | 0.394 | 9.22 | 2.13 | 43.3 | 16.6 | ||||
| 1975 | 0.397 | 8.53 | 2.22 | 43.6 | 16.5 | ||||
| 1980 | 0.403 | 9.09 | 2.31 | 44.1 | 16.5 | ||||
| 1985 | 0.419 | 9.69 | 2.42 | 45.6 | 17.6 | ||||
| 1990 | 0.428 | 10.12 | 2.47 | 46.6 | 18.5 | 8.5 | 22.5 | 59.8 | 96.5 |
| 1995 | 0.450 | 10.11 | 2.57 | 48.7 | 21.0 | 11.4 | 27.3 | 61.2 | 96.3 |
| 2000 | 0.462 | 10.58 | 2.67 | 49.8 | 22.1 | 10.7 | 27.3 | 63.1 | 96.8 |
| 2005 | 0.469 | 11.17 | 2.72 | 50.4 | 22.2 | 10.5 | 27.3 | 64.2 | 97.5 |
| 2010 | 0.470 | 11.70 | 2.82 | 50.3 | 21.3 | 10.7 | 28.4 | 68.4 | 99.5 |
| 2015 | 0.479 | 12.23 | 2.87 | 51.1 | 22.1 | 12.5 | 30.6 | 70.0 | 98.9 |
| 2020 | 0.488 | 12.90 | 2.97 | 52.2 | 23.0 | 12.5 | 30.0 | 68.6 | 97.9 |
| 2024 | 0.488 | 12.61 | 3.00 | 52.2 | 23.1 | 13.9 | 30.8 | 67.3 | 97.5 |
Sources:
The Fed – Distribution: Distribution of Household Wealth in the U.S. since 1989
A paper by RAND researchers Carter Price and Kathyrn Edwards illustrated changes in income inequality by comparing 2018 incomes by people across the income distribution with the hypothetical incomes those people would have had if income inequality had remained at 1975 levels. They found that people below the 90th percentile would have earned $47 trillion more from 1975 to 2018 if income inequality had remained constant. So, that $47 trillion was effectively transferred from the bottom 90 percent to the top 10 percent (and largely to the top 1 percent) through increasing income inequality.
Causes of increasing economic inequality
Americans believe that systemic political and educational issues are most responsible for increasing economic inequality. A 2025 Pew Research survey found that 61% of Americans think that rich people having too much political influence contributes a great deal to economic inequality, with 48% feeling that way about problems with our education system, 36% about some people being born with more opportunities, 33% about some people working harder than others, 28% about discrimination against racial or ethnic minorities, and 22% about robots and computers doing work previously done by people.
A 2025 Oxfam report cited three eras of policies that have contributed to increasing economic inequality. Starting in the 1980s, government policies have led to a decline in the membership and influence of organized labor and labor income now represents the smallest percentage of total household income since the Great Depression. Welfare reform in the 1990s restructured the U.S. safety net, significantly and permanently reducing its effects on poverty and inequality. Then, several large tax cut policies in the 2000s, 2010s, and 2020s dramatically reduced the progressivity of the U.S. tax system. Most recently, the Congressional Budget Office projected that the One Big Beautiful Bill Act will decrease after-tax income for the poorest decile of Americans by 3.9% through 2034 ($1,559 per year), while increasing after-tax income for the richest decile by 2.3% ($12,044 per year). Clearly, that policy would have failed this policy principle.
Concerns about increasing economic inequality
The United States has significantly more economic inequality than any other developed country. The table below shows the most recent Gini index of income inequality reported by the World Bank for the United States and other developed countries. Of the 22 developed countries on the list, the difference between the United States and the second most unequal country (Italy) is nearly as large as the gap between the second most unequal country and the most equal countries (Norway and the Netherlands). The United States is in a class by itself among developed countries in terms of its economic inequality. Indeed, the U.S. Gini index is most similar to the index in countries like Argentina, Bolivia, and Haiti.
| Country | Year | Gini Index |
| United States | 2023 | 41.8 |
| Italy | 2023 | 34.3 |
| Portugal | 2023 | 33.9 |
| Switzerland | 2022 | 33.8 |
| Australia | 2020 | 33.8 |
| Luxembourg | 2023 | 33.6 |
| Spain | 2023 | 33.4 |
| South Korea | 2021 | 32.9 |
| United Kingdom | 2021 | 32.4 |
| Germany | 2020 | 32.4 |
| Japan | 2020 | 32.3 |
| France | 2023 | 31.8 |
| Austria | 2023 | 31.2 |
| Canada | 2021 | 31.1 |
| Denmark | 2023 | 29.9 |
| Sweden | 2023 | 29.3 |
| Ireland | 2023 | 29.0 |
| Finland | 2023 | 27.4 |
| Iceland | 2019 | 26.8 |
| Belgium | 2023 | 26.8 |
| Norway | 2023 | 26.5 |
| Netherlands | 2021 | 26.5 |
It perhaps makes sense for the United States to be somewhat less equal than other developed countries. Throughout its history, the United States has incentivized entrepreneurial behavior through relatively low tax rates. Those incentives have likely contributed to the greatly disproportionate share of innovations developed in the United States, such as personal computers, mobile phones, the internet, email, and GPS. But U.S. inventors have been making disproportionate contributions for more than 100 years, when economic inequality was much lower, so the current, extreme level of economic inequality is not needed to encourage innovation.
Concerns about excessive economic inequality focus mainly on economic and political issues. Economically, concentrated wealth reduces economic demand, because wealthy households spend a lower percentage of their income than middle-income and low-income households. Excessive inequality also increases financial market volatility and reduces opportunities for low-income individuals, which hurts the economy. Politically, excessive inequality harms democracy, because wealthier individuals can disproportionately influence elections and have disproportionate access to elected officials after elections. Excessive inequality also diminishes trust in institutions and reduces citizen participation in public life.
How should a policy’s effects on inequality be determined
As with our debt policy principle, a policy’s effects on inequality should be assessed with a dynamic estimate prepared by the Congressional Budget Office and/or the Joint Committee on Taxation. Those groups do not automatically consider inequality when they score a bill, but they estimate inequality effects when requested. For the One Big Beautiful Bill, in response to requests from the Democratic Leaders of the House and the House’s Budget Committee, the CBO estimated the effects of that bill from 2026 to 2034 by household income decile. Those groups could similarly estimate the effects of a proposed bill on any of the income inequality and wealth inequality measures discussed above.