Reduce Inequality to Address Affordability

In the United States today, the cliché is true: The richer are getting richer and the poor are getting poorer. The saying has to be revised somewhat since it is the entire bottom 80 percent of households who are getting relatively poorer, not just households in poverty.

Figure 1

Figure 1 shows that the bottom four quintiles all received a smaller share of all income in 2024 than in 1974. For example, the third or middle quintile received 17 percent of all income in 1974 but only 13.9 percent in 2024. In contrast the highest quintile received 43.5 percent in 1974, and its share grew to 52.2 percent in 2024. The top 20 percent is capturing the majority of all income.

Looking at the percentage change in the share of income received illustrates the growing inequality even more clearly. Figure 2 shows that the share of income going to the top 5 percent of households grew by 40 percent from 1974 to 2024. This is the fastest growth rate. The share of income going to the poorest quintile declined by 27.9 percent, the fastest decline.

Figure 2

Looking at these data, it is not surprising that US households are feeling squeezed. If most households are receiving a smaller share of all income than they did in the past, then this situation could easily generate economic anxiety and cause some goods to be more difficult to afford.

There are several things that policymakers could do to reverse the increasing inequality and make things more affordable for low- and middle-income households. One is to increase the wages of low-wage workers by increasing the minimum wage. This would prevent the lowest quintile from experiencing continued declines in their share of income. Making it easier for workers to form unions pushes the wages of average workers up and reduces inequality. Other policies that support tight labor markets also help to increase wages and reduce inequality.

In recent decades, the richest households have received even larger slices of all national income. Since they have had the strongest income growth, they should be also paying more in taxes to support public goods like schools, roads, health care, and so on. Instead, since the 1970s policymakers have been lowering taxes on the rich. More than 70 percent of the tax cuts in Trump’s 2025 Big Bill for Billionaires* goes to the richest fifth of US households. This is the opposite of what should be done to address inequality and affordability.

* The official name is The One Big Beautiful Bill Act.

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