The income inequality bogeyman
This article originally appeared in the Winter 2026 issue of Thinking Minnesota magazine.
Progressives’ fixation with inequality could undermine the U.S. economy
In 1995, American Experiment published a groundbreaking report that set the record straight on income inequality. Authors John Hinderaker and Scott W. Johnson specifically noted that, contrary to the “dramatic stories portraying a widening inequality of income and a disappearing middle class,” Americans were doing well economically across the board. Closely observed, the shrinking middle class was due solely to households getting richer and climbing the income ladder. This favorable trend has persisted during the last 30 years. Yet bleak narratives about inequality continue to spread, setting the stage for progressive remedies, such as tax hikes on the wealthy, which could inflict substantial harm on the country’s future.
Perhaps nothing captures this unwavering fixation on inequality more clearly than Bernie Sanders’ political career. In his 1997 book, “Outsider in the House,” Sanders writes, “In America, we have the most inequitable distribution of wealth in the entire industrialized world. The middle class is shrinking, the working class is scraping by, and the poor are ever more deeply mired in poverty.” Despite becoming a millionaire in 2016, Sanders has continued to criticize the wealthy, decrying the need for government intervention to ease the gap between the rich and the poor. In 2021, he wrote for The Guardian that the U.S. was “moving rapidly toward an oligarchic form of society, where a handful of billionaires have enormous wealth and power while working families have been struggling in a way we have not seen since the Great Depression,” a development supposedly worsened by the COVID-19 pandemic. During the 2025 election, Sanders endorsed self-described Democratic Socialist Zohran Mamdani for mayor of New York City, explaining in an interview with The Nation that Mamdani is prepared to “take on the oligarchs” and “improve the lives of working people.”
The data, however, reveals an entirely different and overall positive trend. According to the U.S. Census Bureau, America’s median household income reached its highest level in 2019, as economic growth led to significant gains across the board. As a result, poverty and unemployment also hit their lowest levels in history that same year. In 2019, the median household income was $84,300, which is 20 percent higher than in 1995 (inflation-adjusted) and 17 percent higher than in 1997, when Sanders’ first book condemning inequality was published. While the COVID-19 pandemic eroded some of those gains, income in 2024 remains the second highest, only behind 2019, and is 19 percent higher than in 1995. Poverty, which increased during the pandemic, fell back to its second-lowest level in history in 2024. The share of U.S. households considered low-income — those making less than $50,000 — decreased from nearly 40 percent in 1995 to 30 percent in 2024. Meanwhile, households earning more than $100,000 increased from 30 percent to 43 percent, and over a quarter of all U.S. households made more than $150,000 in 2024, nearly doubled from 1995.
Economic growth, which is responsible for creating millionaires and billionaires, has also lifted incomes nationwide, nearly obliterating poverty in the process. The United States remains a land of opportunity, with individuals experiencing upward economic mobility through their lifetimes and across generations. To the extent that it has become harder for low-income children to advance, as some studies suggest, higher taxes and redistribution will not reverse that trend but will slow the economy, further reducing economic opportunities for those in poverty.
How official data overstates poverty and inequality
Official statistics are partly to blame for the misleading narrative about inequality. For example, the U.S. Census Bureau reported that in 2023, the average household income for the bottom 20 percent (or bottom quintile) was $17,350. On the other hand, a household in the top 20 percent had an average income of $297,300 — 17 times that of the bottom quintile. Yet the Bureau does not include some earned income, such as work benefits and capital gains, and more than two-thirds of transfer payments from various assistance programs, including refundable tax credits such as the Earned Income Tax Credit (EITC), in its income definition. According to the IRS, EITC payments averaged $2,743 per household in 2023. Income also excludes non-cash income such as housing subsidies, food stamps, and tens of thousands of dollars in spending on medical care through Medicaid and the Children’s Health Insurance Program (CHIP), but does not exclude the money households pay in taxes, which can amount to over a third of all income for high-income taxpayers. As a result, official statistics overstate income for the rich, undercount income for the poor, exaggerate inequality by multiple magnitudes, and reinforce the notion that the U.S. has no meaningful social safety net for those in poverty.
Data from the Congressional Budget Office (CBO) addresses these omissions, providing a more accurate picture of income distribution. According to CBO, in 2021 — the most recent year for which data is available — the average household pre-tax income for the bottom quintile was $22,500 ($16,640 for the Census Bureau). At the top, the average household income was $418,100 ($301,600 for the Census Bureau), nearly 19 times that of the bottom quintile. In 2021, however, households in the top quintile paid, on average, 25 percent of their income in federal taxes compared to a negative 0.4 percent rate for the bottom quintile. The top one percent paid an effective tax rate of 30 percent. Without including temporary expanded unemployment benefits enacted during the pandemic, households in the bottom quintile received $82 in means-tested transfers for every $100 of earned income, compared to $6 for the middle three quintiles and less than a dollar for the top quintile.
Consequently, after accounting for taxes and transfers, the average household income for the bottom quintile rose to nearly $49,000. For the top quintile, income fell by $100,000 to $317,000, and was 6.5 times that of the bottom quintile, not 19. The share of income owned by the bottom quintile rose from 3.3 percent to eight percent after taxes and transfers, while the share of income for the top quintile fell from 59 percent to 50 percent. Furthermore, CBO estimates that between 1979 and 2021, households in both the top and bottom quintiles more than doubled their incomes. For the bottom quintile, income grew by 127 percent, and for the top quintile, it grew by 167 percent. Excluding temporary expanded transfers during the pandemic, income grew by 96 percent for the bottom quintile between 1979 and 2021, and by 165 percent for the top quintile during the same period. Inequality also grew, but at a slower rate after accounting for taxes and transfers.
Since the Census Bureau uses pre-tax income to determine poverty, it also overstates the number of people in poverty. In 2021, the Census Bureau reported that 11.6 percent of the U.S. population was in poverty. However, CBO estimated that after accounting for underreported cash transfers, such as tax credits and federal taxes, the poverty rate fell to 4.4 percent. Poverty fell further to 0.8 percent after including non-cash transfers, such as SNAP and Medicaid payments, and to 0.5 percent after adjusting for a more appropriate measure of inflation — one based on Personal Consumption Expenditures (PCE). So, while official poverty data show no progress between 1979 and 2021, material poverty fell from 5 percent to 0.5 percent after CBO adjustments.
Upward mobility is alive and well
The famous economist Joseph Schumpeter likened the distribution of income to that of rooms in a hotel. At a given time, some people occupy luxurious rooms, and others occupy small rooms. What is fairer than facilitating an equitable distribution of rooms is, as summarized by the U.S. Department of the Treasury, ensuring that “those in the small rooms have an opportunity to move to a better one, and that the luxurious rooms are not always occupied by the same people.” In other words, what matters more than the distribution of income at a given point in time is whether low-income people have opportunities to climb the income ladder. Two surveys, one administered by the Pew Research Center in 2009 and the other by the American Enterprise Institute in 2018, found that respondents were more likely to describe the American dream as “being free to accomplish almost anything you want with hard work,” or “freedom to have choice of how to live one’s life,” rather than as becoming wealthy or retiring comfortably. So, is the United States still the land of opportunity? Studies suggest yes, but also reveal that mobility could be declining, especially at the top and bottom.
In 2007, the Department of the Treasury published a study on income mobility covering the period between 1996 and 2005. Using income reported on tax returns (which do not include government transfer payments), the Treasury estimated that, in 2005, more than half of all taxpayers belonged to a different quintile than the one they occupied in 1996. More importantly, “about half… of those in the bottom income quintile in 1996 moved to a higher income group by 2005,” with five percent moving to the highest quintile. For the richest (one percent of the top one percent), only a quarter remained at the top in 2005, proving that many of the rich are simply different people at different times. Among the middle class, 42 percent moved up to a higher quintile, while only 25 percent dropped to a lower quintile.
Due to economic growth, “median incomes of all taxpayers increased by 24 percent after adjusting for inflation” between 1996 and 2005. Households in the bottom quintile experienced the highest growth, seeing their income rise by 90 percent. Whereas two-thirds of all taxpayers saw their income rise, the share was 82 percent among those in the bottom quintile, with nearly half experiencing a doubling of their income. At the top, incomes rose for half of taxpayers in the top 20 percent but fell by over a quarter for the top one percent. Using Census Bureau data, the same, albeit slower, mobility is observed between 2005 and 2019 for individuals aged 25 to 50. Among the taxpayers who started in the bottom quintile in 2005, 42 percent had moved to an upper quintile by 2019, with four percent moving all the way to the highest quintile. For those who started in the top 20 percent in 2005, approximately 53 percent remained there in 2019.
Looking across generations, a 2012 study by Pew analyzing data from the Panel Study of Income Dynamics (PSID), which has followed the same households since 1968, found that in 2009, 84 percent of individuals had higher incomes than their parents did at the same age. Even more impressive, 94 percent of those whose parents were in the bottom 20 percent exceeded their parents’ incomes as adults. Mobility was particularly high for college-educated people. Specifically, by 2009, nine out of every 10 individuals raised in the bottom quintile who had earned a college degree had advanced into a higher income group, compared to only half of those who did not earn a college degree. In fact, earning a college degree made it more than three times as likely for a person “to rise from the bottom of the family income ladder all the way to the top.”
Progressive policies are not the answer
Across several measures of well-being, life is unequivocally better in the U.S. now than it was 50, 30, 20, or even 10 years ago. Income is at one of its highest levels in history and poverty is at a record low thanks to the U.S.’s relatively free economic landscape. Lower taxes and a friendlier regulatory burden have driven the continued economic progress the United States has achieved, especially when compared to high-tax countries in Europe, which have stagnated. While a concern, stagnating wages among non-college-educated workers are not evidence that the economic system is rigged against ordinary workers, nor will those wage trends be addressed by higher taxes and redistribution.
Today, much like 30 years ago, the rich are more likely than the poor to (1) be college-educated, (2) work full-time, (3) be married, and (4) have two-earner households. According to the U.S. Census Bureau, among households with no earners, over half had incomes below $50,000 in 2023. For two-earner households, the share was six percent. Among those who worked 26 weeks or fewer during the year, 40 percent had incomes below $50,000, compared with 10 percent among those who worked 50 weeks or more. Data from the Bureau of Labor Statistics further show that in 2022, 42 percent of individuals who did not work were in poverty compared to 3.8 percent of those who did. Among those who worked, the poverty rate was 2.5 percent for full-time workers but 11 percent for part-time workers. Among college-educated full-time workers, the poverty rate was 1.4 percent compared to 12.6 percent for those with less than a high school diploma.
Those in poverty need more than handouts, which could turn them into perpetual wards of the state. They need a fast-growing economy to create jobs and raise wages. To improve intergenerational mobility, low-income students need policies that allow them to escape failing schools and develop the necessary skills to share in the continued progress of the 21st century. Similarly, policies that encourage marriage, stability, and two-parent families could also improve educational outcomes and enhance children’s career prospects. Beyond that, lawmakers should champion the deregulation of housing, childcare, and health care, which will reduce costs, especially for young families, making the American dream more attainable. Ultimately, Americans want the freedom to succeed; higher taxes and redistribution will accomplish the opposite.