A Guide to Statistics on Historical Trends in Income Inequality

The broad facts of income inequality over the past several decades are easily summarized:

• The years from the end of World War II into the 1970s were ones of substantial economic growth and broadly shared prosperity.
  • Incomes grew rapidly and at roughly the same rate up and down the income ladder, roughly doubling in inflation-adjusted terms between the late 1940s and early 1970s.
  • The gap between incomes high up the ladder and incomes in the middle and lower rungs — while substantial — did not change much during this period.
• Beginning in the 1970s, economic growth slowed and the income gap widened.
  • Income growth for households in the middle and lower parts of the distribution slowed sharply, while incomes at the top continued to grow strongly.
  • The concentration of annual income at the very top of the distribution rose to levels last seen nearly a century ago, during the “Roaring Twenties.” (Hourly wage growth in the last few years has been stronger in the lower part of the wage distribution, but so far this has not substantially reversed the overall concentration of household income since the 1970s.)
• Wealth — the value of a household’s property and financial assets, minus the value of its debts — is much more highly concentrated than income. Federal Reserve data show that the least-wealthy 50 percent of U.S. households hold very little of the nation’s wealth (less than 4 percent), while the households with wealth in the top 10 percent hold over two-thirds. The concentration of wealth at the very top has increased over the past 35 years.
• Racial and ethnic inequities in income remain profound and little different than half a century ago. Racial and ethnic inequities in wealth are even larger than those in income.
• Despite the general rise in inequality, the last half century has seen some progress against poverty — that is, the share of people lacking enough income to meet a minimum set of needs — due chiefly to stronger government assistance.

Data from a variety of sources contribute to this broad picture of strong growth and shared prosperity during the early postwar period, followed by slower growth and greater inequality since the 1970s. Within these broad trends, however, different data tell slightly different parts of the story, and no single data source is best for all purposes.

This guide consists of four sections. The first describes the commonly used sources and statistics on income and discusses their relative strengths and limitations for understanding income trends. The second provides an overview of the trends revealed in those key data sources. The third and fourth sections supply additional information on wealth, which complements the income data as a measure of how the most well-off people in the U.S. are doing, and poverty, which measures how the least well-off people are doing.

I. The Census Survey and IRS Income Data

The most widely used sources of data and statistics on household income and its distribution are the annual household survey conducted as part of the Census Bureau’s Current Population Survey (CPS) and the Internal Revenue Service’s (IRS) Statistics of Income (SOI) data compiled from a large sample of individual income tax returns. The Census Bureau publishes annual reports on income, poverty, and health insurance coverage in the United States based on the CPS data,^[2] and the IRS publishes an annual report on individual income tax returns based on the SOI.^[3] While the Federal Reserve also collects income data in its triennial Survey of Consumer Finances (SCF),^[4] the SCF is most valuable as the best source of survey data on wealth.

Each agency produces its own tables and statistics and makes a public-use file of the underlying data available to other researchers. In addition, the Congressional Budget Office (CBO) uses a methodology that combines CPS and SOI data to estimate household income both before and after taxes, as well as average taxes paid, by income group back to 1979.^[5]

Economists Thomas Piketty and Emmanuel Saez used SOI data to estimate the concentration of income at the top of the distribution back to 1913.^[6] They and their colleague Gabriel Zucman have also examined trends in wealth concentration and explored measuring how national income, the income earned producing GDP, is distributed.^[7] The Commerce Department’s Bureau of Economic Analysis has developed similar data on the distribution of personal income, which makes up the bulk of national income, to measure how the gains from economic growth are distributed across households.^[8]

Concepts of Income Measured in Census and IRS Data

Census Money Income

The Census Bureau bases its report on income and poverty on responses to a set of questions (the Annual Social and Economic Supplement or ASEC) added in February, March, and April to the monthly CPS, the primary source of data for estimating the unemployment rate and other household employment statistics.^[9] The ASEC, also called the March CPS,^[10] provides information about the income that families receive, including “money income” such as earnings, dividends, Social Security, and other cash benefits; ^[11] the value of tax credits such as the Earned Income Tax Credit (EITC); and non-cash benefits such as nutritional assistance, Medicare, Medicaid, public housing, and employer-provided fringe benefits.

The income measure featured in the Census report is money income before taxes, and the unit of analysis is the household. The statistics on household income are available back to 1967. Census has statistics on family income back to 1947, but because Census defines a “family” as two or more people living in a household who are related by birth, marriage, or adoption, those statistics exclude people who live alone or with others to whom they are not related.

Census’s standard income statistics do not adjust for the size and composition of households. Two households with $40,000 of income rank at the same place on the income distribution ladder, even if one is a couple with two children and one is a single individual. An alternative preferred by many analysts is to make an equivalence adjustment based on household size and composition so that the adjusted income of a single person with a $40,000 income is larger than the adjusted income of a family of four with the same income. Equivalence adjustment accounts for the fact that larger families need more total income but less per capita income than smaller families because they can share resources and take advantage of economies of scale. In recent reports, Census has supplemented its measures of income inequality based on household money income with estimates based on equivalence-adjusted income.^[12]

For reasons having to do with small sample size, data reporting and processing restrictions, and confidentiality considerations, Census provides more limited information about incomes at the very top of the income distribution than elsewhere in the distribution. For example, Census does not collect information about earnings over $1,099,999 for any given job; earnings above that level are recorded in Census data as $1,099,999.^[13]

Income Tax Data

The income tax data used in distributional analysis come from a large sample of tax returns compiled by the IRS’s Statistics of Income Division. For 2021, the sample consisted of about 440,000 returns selected from the roughly 162 million returns filed that year.^[14] For the population that files tax returns and for the categories of income that get reported, these tax data are generally more accurate and more complete than survey data; the CPS, for example, is prone to underreporting of some kinds of income. Moreover, unlike CPS money income, income from tax returns also includes capital gains realized from the sale of stocks and bonds and other assets, a major income source for the wealthy. (Neither income measure includes the change in the value of unrealized capital gains.)

However, not all people are required to file tax returns, and tax returns do not reflect all sources of income. Since those not required to file returns likely have limited incomes, tax data do not provide a representative view of households with low incomes. (This is the opposite problem of the CPS data, which have inadequate coverage of high-income households.) Like Census money income, income reported on tax returns excludes non-cash benefits such as SNAP (formerly known as food stamps), housing subsidies, Medicare, Medicaid, and non-taxable employer-provided fringe benefits.

The exclusion of non-filers is a major limitation of the tax data for distributional analysis. A further complication is that the data are available only for “tax-filing units,” not by household or family. (Members of the same family or household may file separate tax returns.)

SOI tax data are also less timely than Census data. Final statistics for tax year 2021 were released in April 2024.

Key Historical Series Constructed From Census and IRS Data

CBO’s Distribution of Household Income

CBO produces annual estimates of the distribution of household income and taxes that combine information from the CPS and SOI.^[15] Thus, these estimates have relatively detailed information about very high-income households and taxes paid (the strengths of the SOI) and about lower-income households’ income and non-cash benefits (the strengths of the CPS). CBO also uses expanded measures of household income that include more sources of income than either CPS- or SOI-based measures alone.

Over the years, CBO has made some significant changes to its methodology for analyzing the distribution of income and taxes, notably to how it values government-provided health insurance, which income measure it uses to rank households in analyzing the effects of transfers (government payments) and taxes on inequality, and how it adjusts for inflation. (See the Appendix for more detail.)

In recent reports CBO employs three income measures:

• Market income, which consists of labor income (wages and fringe benefits), business income, capital income (dividends, interest, and realized capital gains), income received in retirement for past services (e.g., private pensions), and other non-governmental income sources. This income measure, however, does not include unrealized capital gains, which matter particularly at the very top of the income distribution.
• Income before transfers and taxes, which consists of market income and social insurance benefits (including Social Security, Medicare, regular unemployment insurance, and workers’ compensation). More precisely, this category reflects “income before means-tested transfers and taxes.”
• Income after transfers and taxes, which further adds means-tested transfers (cash payments and in-kind services provided through federal, state, and local government assistance programs to people with relatively low incomes or few assets); subtracts federal individual and corporate income taxes, payroll taxes, and excise taxes; and adds the value of tax credits such as the EITC and Child Tax Credit. Means-tested transfers in CBO’s data include Medicaid and the Children’s Health Insurance Program (CHIP), SNAP, Supplemental Security Income, and, (during the COVID-19 pandemic) expanded federal unemployment benefits and recovery rebate credits.

CBO uses income before transfers and taxes to rank households. It adjusts for household size by dividing the household’s income by the square root of the number of people in the household. Thus, the adjusted household income of a single person with $20,000 of income is equivalent to that of a household of four with $40,000.

CBO constructs its distributional tables by ranking individuals by their adjusted household income before transfers and taxes and dividing that ranking into five income groups (quintiles), each containing roughly an equal number of people (with further disaggregation of the top quintile).^[16] The quintiles contain slightly different numbers of households, depending on the average household size at different points in the income distribution.

One difficult issue in using an expanded definition of income, as CBO does, is how to treat government-provided health insurance such as Medicare and Medicaid. While it has not always done so, CBO now treats the average cost to the government of providing health insurance to eligible households as household income. It essentially does the same for employer-provided health insurance. While government-provided health insurance certainly increases a household’s well-being, it is not the same as money income or near-cash transfers like SNAP benefits because it does not directly help households of limited means meet basic daily needs such as food, clothing, and shelter.^[17] Moreover, part of the government’s cost reflects administrative costs and health industry profits. Since medical benefits make up a sizeable and growing share of income in CBO’s series, this treatment of government-provided health insurance as equivalent to cash income can create differences between trends in CBO’s income data, which include these benefits, and trends in other income series that do not include these benefits, as discussed in Part II.

The latest CBO analysis, released in September 2024, comes in two parts: The Distribution of Household Income in 2021 and a companion slide deck, Changes in the Distribution of Household Income from 1979 to 2021.^[18] These include information on income before and after transfers and taxes as well as taxes paid for each quintile and a breakdown of income groups in the top quintile of households. Because of the effort involved in preparing these analyses and lags in the availability of SOI data, CBO’s distributional analysis for a given year is not published until a couple of years later.

Piketty-Saez Data on Income Concentration

Economists Thomas Piketty and Emmanuel Saez first published income inequality statistics in 2003 based on IRS data back to 1913 to provide a long-term perspective on trends in income concentration within the top 10 percent of the distribution.^[19] They focused on the top of the income distribution because prior to World War II, only about 10 to 15 percent of potential tax units had to file an income tax return. Saez continues to update this analysis.^[20]

Their featured income concept in this analysis is market income before individual income taxes. They define market income as the sum of all income sources reported on tax returns, including realized capital gains^[21] and taxable unemployment compensation.^[22] Non-taxable non-cash income sources, such as nutrition assistance and employer-provided health care benefits, are not included.

People with market income who are not required to file income tax returns do not show up in the population of tax filers, and their income does not show up in the total income reported on tax returns.^[23] Piketty and Saez address these omissions by estimating the number of non-filers and their income and adding these to the population of tax filers and the market income calculated from the income tax data.^[24] They compute total income as all market income reported on tax returns plus their estimate of market income for non-filers.^[25] The top 10 percent of incomes, top 1 percent, etc. are defined with respect to this total income and to the population of potential tax units (filers plus non-filers). Piketty and Saez do not make an adjustment for family size in this analysis.

The primary advantage of these Piketty-Saez data is that they provide the longest historical series of annual data on income at the top of the distribution. The key limitation is that they are based exclusively on tax return data. As a result, they do not include the actual data for individual non-filers (and therefore provide no information about the distribution of income among non-filers). Nor do they account for government cash or near-cash transfers.

These public and private non-cash benefits, which are missing from the Piketty-Saez income measure, constitute a growing share of personal income.^[26] As a result, the Piketty-Saez measure captures a declining share of personal income in the national income and product accounts over time, possibly affecting their estimates of the share of total income growth occurring at the top of the distribution.

Recent work by Piketty, Saez, and Zucman (PSZ) tries to address this concern by ambitiously combining tax, survey, and national accounts data to estimate the distribution of total national income, both before and after transfers and taxes.^[27] They allocate all national income to U.S. residents age 20 or older, with married couples’ income split equally in their base case.^[28] As the authors acknowledge, however, “imputing all national income, taxes, transfers, and public goods spending requires making assumptions on a number of complex issues, such as the economic incidence of taxes and how the benefits from government spending such as national defense and infrastructure investment are distributed across households.”^[29]

Economists Gerald Auten and David Splinter (AS) have their own analysis of the distribution of national income, which finds that the share claimed by households with the top 1 percent of income has increased only modestly. While PSZ found that the share of after-tax and transfer income for households with the top 1 percent of income rose from 9 percent in 1960 to 15 percent in 2019, AS find that it rose only from 8 percent in 1960 to 9 percent in 2019. The difference seems to stem from different assumptions about how the substantial share of national income not reported on tax returns is distributed, about which there is no consensus among analysts. Both analyses find a similar increase in the top 1 percent share of pre-tax income.

While acknowledging important issues raised in the AS analysis, a careful evaluation of the dispute by Brookings Institution scholars concludes that “the preponderance of evidence suggests that income inequality has increased, both in the U.S. and in other countries.”^[30] 

Bureau of Economic Analysis on the Distribution of Personal Income

The Commerce Department’s Bureau of Economic Analysis (BEA) has begun to measure how personal income is distributed across households, with the first prototype statistics published in 2020. BEA has now published estimates for 2000 to 2021, with preliminary estimates for 2022.^[31]

Personal income is the largest component of national income, comprising the income that people receive in return for their provision of labor, land, and capital used in the current production of goods and services, plus the net current transfer payments that they receive from business and government, including private and public health benefits. The distribution of total personal income measures how the benefits of economic growth are shared across households. The published 2000-2021 data show that the share for households with incomes in the top 1 percent has ranged from a low of 11.7 percent in 2003 to a high of 14.0 percent in 2012. The preliminary 2022 estimate is between 13.4 and 14.3 percent. A key drawback is that the timeframe for these data is short.

II. Broad Trends in Income Inequality

Because each individual source of readily available data on income distribution has different advantages and limitations, no single source illustrates all of the major trends in inequality over the past 11 decades. Ideally, we would look at a comprehensive measure of income that covers a long time span, allows us to compare income before and after transfers and taxes at different points in the distribution, and accounts for changes in household size and composition.

CBO data satisfy many of these criteria but only go back to 1979 and are sensitive to particular methodological choices. (See the Appendix.) The historical Census family income data series and Piketty-Saez top-income concentration data cover a longer time span but use less comprehensive income measures and do not adjust for changes in household size and composition. Using a more comprehensive income measure, as Piketty, Saez, and Zucman do in their statistics on the distribution of national income, addresses some issues but raises others because of the number of assumptions involved.

The Loss of Shared Prosperity

Census family income data show that from the late 1940s to the early 1970s, incomes across the distribution grew at nearly the same pace. Figure 1 shows the level of real (inflation-adjusted) income at several points on the distribution relative to its 1973 level.^[32] It shows that real family income roughly doubled from the late 1940s to the early 1970s at the 95^th percentile (the income level separating the highest-income 5 percent of families from the remaining 95 percent), at the median (the income level separating families with incomes in the upper half of the distribution from families with incomes in the lower half), and at the 20^th percentile (the income level separating families with incomes in the lowest fifth from the remaining four-fifths of families).

Then, beginning in the 1970s, income disparities began to widen, with income growing much faster at the top of the income ladder than in the middle or bottom. Household (as opposed to family) income data, which are available only since 1967, show a similar pattern of widening inequality and scant growth in median income and income at the 20^th percentile following the 1999 and 2007 business cycle peaks.^[33]

One important component of income is hourly wages. Recent wage data show wage inequality trending strongly downward from 2019 through 2023.^[34] Despite these signs of narrowing of hourly wage gaps, so far this has not substantially reversed the overall concentration of household income since the 1970s.

While the Census family income data are useful for illustrating that income inequality began widening in the 1970s, other data have advantages in assessing more recent trends.

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Wide Income Gaps by Race and Ethnicity

Census data also show that incomes continue to be profoundly inequitable among households of different races and ethnicities. While overall median household income increased by 4 percent in 2023 after adjusting for inflation (and stood at an all-time high for Black households), median income remained more than one-third lower for Black households — and more than one-fourth lower for Latino households — than for white households, a situation that has changed little in half a century. ^[35] (See Figure 2.)

In 2023, median income for Black households was 63 percent of that for white households, up slightly from 58 percent in 1972, when comparable figures are first available. Income for Latino households was 74 percent of that for white households, unchanged from 1972.

Income for American Indian and Alaska Native (AIAN) households, including those identifying with multiple races or ethnicities, was roughly 69 percent of that for white households, which was not statistically distinguishable from 2002, when comparable AIAN figures begin. Median income for Asian households, by contrast, was one-fourth above that of white households in 2023.

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Widening Inequality Since the 1970s

Census family income data show that the era of shared prosperity ended in the 1970s and illustrate the divergence in income since then. CBO data allow us to look at what has happened to more comprehensive income measures since 1979 — both before and after transfers and taxes — and offer a better view of what has happened at the top of the distribution.

As Figure 3 shows, from 1979 to 2007 (just before the financial crisis and Great Recession), average income after transfers and taxes quadrupled for households in the top 1 percent of the distribution.^[36] The increases were much smaller for those with incomes farther down the income scale, but households with incomes in the bottom fifth did somewhat better than those in the middle.

The CBO data also show income growth for households with incomes in the bottom 20 percent over this period that’s substantially greater than growth for the middle 60 percent of households. But this finding appears to be sensitive to methodological changes CBO adopted in 2012 and 2018, including in how it values government-provided health insurance and in the income measure used to rank households, as described in the Appendix. Together, these changes appear to strongly affect income trends for households with the lowest incomes, substantially raising the level and rate of growth of their measured income and possibly exaggerating the rise in their true standard of living.

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After-tax incomes fell sharply for households with incomes at the top of the distribution in 2008 and 2009 but began to rise again thereafter, reaching their 2007 peak level again in 2020. The upward jump in the incomes of those in the bottom fifth in 2020 and 2021 largely reflects the recovery rebates and substantially expanded unemployment compensation payments in COVID-19 relief packages. The American Rescue Plan’s fully refundable Child Tax Credit was one of the primary drivers of this trend; it boosted the incomes of families with incomes in the bottom of the distribution and contributed to historic declines in child poverty.

Income Concentration Has Returned to 1920s Levels

The Piketty-Saez estimates derived from IRS tax data put the increasing concentration of income at the top of the distribution into a longer-term historical context.^[37] As Figure 4 shows, the share of income before transfers and taxes for households with incomes in the top 1 percent has been rising since the late 1970s, and in recent decades has climbed to levels not seen since the 1920s. The vast majority of the increase occurred among households with incomes in the top 0.5 percent of the distribution.^[38]

The increase in income concentration since the 1970s reversed the prior downward trend. After peaking in 1928, the share of income held by households at the very top of the income ladder declined through the 1930s and 1940s. Consistent with the shared prosperity found in the Census data on average family income, the share of income received by those with incomes at the very top changed little over the 1950s, 1960s, and early 1970s.

The sharp rise in income concentration at the top since the late 1970s was interrupted briefly by the dot-com collapse in the early 2000s and again in 2008 with the onset of the financial crisis and Great Recession. But top incomes generally have been on the rise since 2009. The Piketty-Saez data show the same pattern in 2012-2021 as CBO’s pre-transfer data, with a further temporary rise in top income shares in 2021. Despite a small subsequent dip, top income shares in 2022 remained above any pre-pandemic year since 1928.^[39]

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III. The Distribution of Wealth

A family’s income is the flow of money coming in over the course of a year. Its wealth (sometimes referred to as “net worth”) is the total stock of assets it has as a result of inheritance and saving, less any liabilities.^[40] Wealth is much more highly concentrated than income, and concentration at the top has risen since the 1980s.

The main official source of data for the distribution of household wealth is the Federal Reserve’s Survey of Consumer Finances (SCF), conducted every three years. SCF data go back to 1983; the latest published data, collected in the 2023 survey, are for 2022.^[41] The SCF is based on a two-part sample: a standard, geographically based random sample and a special oversample of relatively wealthy families. For the 2022 survey 4,602 families were interviewed, compared with 5,783 in the 2019 survey. The data sources discussed in the preceding sections on income distribution are superior to the SCF for analyzing income distribution,^[42] but none of those sources has comparable data for looking at the distribution of wealth.

Wealth Is More Concentrated Than Income

While there is considerable overlap, the people in the highest 1 percent of income are not exactly the same as the 1 percent of people with the highest wealth.

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Wealth is even more concentrated than income (see Figure 5). In the SCF data, households with incomes in the top 1 percent of the income distribution received roughly a fifth of all income in 2022, while households with wealth in the top 1 percent of the wealth distribution held more than one-third of all wealth. Similarly, households with incomes in the top 10 percent of the income distribution received a little over half of all income, while households with wealth in the top 10 percent of the wealth distribution held nearly three-quarters of all wealth.^[43]

Wealth Is Highly Concentrated by Race

Wealth is also highly concentrated by race. Racial inequities are even wider for wealth than for income because wealth reflects the accumulated effects of both current and historical discrimination in employment and educational opportunities and other racial and ethnic barriers. In the SCF data for 2022:

• Median net worth among Black households was just 16 percent of that of white households, and among Hispanic households was 22 percent of white households, according to a recent Federal Reserve report. By contrast, median income for Black and Latino households was 57 percent and 58 percent, respectively, of median income for white households. ^[44]
• In dollar terms, median net worth among Black households was about $44,900 and $61,600 among Latino households but $285,000 for white households. (See Figure 6.)

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• Among wealthier households, differences are even more stark. Among Black households, the household with wealth at the 90^th percentile — that is, the typical or median household in the wealthiest one-fifth of all Black households — has a net worth of $517,000. The household with wealth at the 90^th percentile of Latino households similarly owns assets totaling $518,000. The household with wealth at the 90^th percentile of white households owns more than $2.5 million — or nearly five times more than Black and Hispanic households.^[45]
• Across racial and ethnic groups, many households have low net worth or even negative net worth, meaning they owe more than they own. The household with wealth at the 10^th percentile of Black households — that is, the median of the least wealthy one-fifth of Black households — had negative net worth of about $11,400, which means these households are in debt. The household with wealth at the 10^th percentile of Latino households had positive but very low net worth of $210, while the household with wealth at the 10^th percentile of white households owned modestly more, with about $5,500.

As a result of the unequal distribution of wealth by race, the wealthiest one-tenth of white households (those who have a net worth of $2.5 million or more, who make up just 7 percent of the overall population) as a group own 61 percent of all U.S. wealth. The other 90 percent of white households, who make up 60 percent of the population, own 24 percent of U.S. wealth. All households of color, who together make up the remaining 33 percent of all households, own just 14 percent of the wealth.

Least Wealthy Half of Households Hold a Tiny Share of Wealth

The most up-to-date Federal Reserve data on wealth distribution are presented in its distributional financial accounts, which integrate the SCF’s rich distributional information with quarterly data on aggregate balance sheets of major sectors of the U.S. economy from the Fed’s Financial Accounts of the United States.^[46] Distributional financial account data begin in 1989, are updated quarterly, and include information on the share of wealth held by households in the bottom 50 percent, next 40 percent, next 9 percent, and top 1 percent.

The distributional financial accounts illustrate how little wealth households whose wealth falls in the bottom 50 percent of households have (no more than 4 percent) and how much households whose wealth is in the top 10 percent have (over two-thirds). They also show that concentration has increased at the very top of the wealth distribution since 1989.^[47] (See Figure 7.)

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Wealth Has Become More Concentrated at the Very Top Since the 1970s

While the Federal Reserve data are invaluable, they cover a relatively short period of time. Emmanuel Saez and Gabriel Zucman have used tax-return information on income derived from wealth to infer the underlying distribution of wealth over a longer period.^[48] Figure 8 shows Saez and Zucman’s estimates of the share of wealth held by the wealthiest 1 percent of households and wealthiest 0.5 percent of households since 1913. As with income, these data show a long decline in wealth concentration from the late 1920s into the 1970s but a marked increase since then, driven by a rising share of wealth among the very wealthiest (the top 0.5 percent).^[49]

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IV. Poverty

The Official Poverty Measure

The official U.S. poverty measure was developed in the 1960s. The Census Bureau uses money income (as described above) to determine a person’s official poverty status. Each family or unrelated individual in the population is assigned a money income threshold based on the size of their family and age of its members.^[50] A person is defined as living in poverty if their family income is below the threshold for that family size and composition. (The threshold for a family with two adults and two children was $30,900 in 2023.)^[51] The poverty thresholds are adjusted each year to reflect changes in the consumer price index. The poverty rate is the percentage of people living in poverty.

The official poverty statistics show a sharp decline in the poverty rate between 1959 and 1969 but little real change since then, apart from fluctuations due to the business cycle. For a number of reasons, however, the official measure is an unreliable guide to trends in poverty since 1970 and significantly understates progress in reducing poverty since then. It is based on Census money income, which includes cash assistance but does not count non-cash assistance like SNAP and rental vouchers. It also omits the impact of the tax system, including tax credits for working families like the EITC and Child Tax Credit and the taxes families pay.

Alternatives to the Official Poverty Measure

Over the years, researchers have raised a number of serious conceptual and measurement concerns about how the official poverty rate is calculated. Following the publication of an important National Academy of Sciences (NAS) report on poverty measurement in 1995,^[52] the Census Bureau and the Bureau of Labor Statistics (BLS) explored a number of experimental measures reflecting NAS recommendations. NAS-based measures use a more complete definition of income that includes non-cash benefits and tax credits while subtracting taxes and certain expenses. The NAS also recommended using a modernized poverty line that varies with local housing costs.^[53]

Census, with support from BLS, unveiled a refinement of the NAS-based measures, called the Supplemental Poverty Measure (SPM), in 2011. This measure reflects recommendations from a federal interagency technical working group that drew on the NAS report and subsequent research. The Census SPM is available from 2009 onward.^[54]

Unlike the official measure, which counts only a family’s cash income, the SPM counts non-cash benefits (SNAP, housing assistance, WIC,^[55] school lunch, and home energy assistance) and tax credits (the EITC and Child Tax Credit) as income and subtracts various expenses, namely federal and state income and payroll taxes, child care and other work expenses, out-of-pocket medical expenditures, and child support paid. In addition, the SPM tries to account for the evolution over time in societal standards of poverty by updating its thresholds each year based on changes in what most families spend on basic needs (food, clothing, shelter, and utilities). Also, SPM thresholds vary based on local housing costs and the family’s type of housing, such as renters versus homeowners with a mortgage. Unmarried partners are counted in the same SPM family, unlike in the official poverty measure and most previous implementations of the NAS measure.

Efforts to improve poverty measurement are ongoing. In 2023, the National Academies of Sciences, Engineering, and Medicine released a report commissioned by the Census Bureau to evaluate and further improve the SPM. The report calls for expanding the poverty measure to explicitly recognize that families’ minimum basic needs include health care and child care.^[56]

Long-Term Poverty Trends

Non-cash and tax-based benefits constitute a much larger part of government assistance than 50 years ago. Therefore, the exclusion of these benefits in the official poverty measure masks progress in reducing poverty. Trying to compare poverty in the 1960s to poverty today using the official measure yields misleading results; it implies that programs like SNAP, the EITC, and rental vouchers — all of which were either small in the 1960s or didn’t yet exist — have no effect in reducing poverty, which clearly is not the case.

While the federal government has only calculated the SPM back to 2009, Columbia University researchers have estimated the SPM back to 1967.^[57] They calculated poverty rates using both relative SPM thresholds, which change over time based on what families spend on basic needs, and “anchored” thresholds, which use the SPM thresholds from a single year and adjust them for inflation for all other years. Some analysts prefer to use an anchored series to ensure that any trends shown in the data are purely due to changes in families’ resources, not changes in the poverty thresholds as the amount that moderate-income families spend on a set of necessities increases. Poverty declines less over the long term when a relative SPM measure is used because the amount that families spend on necessities tends to rise slightly faster than inflation over time, meaning the relative measure’s poverty threshold rises faster as well.

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Under both relative and anchored versions of the SPM, the poverty rate reached a record low in 2021 before rising in 2022 due to the expiration of pandemic-related relief measures. Both SPM versions show more progress against poverty since the 1960s than the official poverty measure, with the anchored SPM showing a sharper decline than the relative SPM.^[58] (See Figure 9.)

Using Census Bureau SPM data starting in 2009 and Columbia SPM data for earlier years, we find that government economic security programs are responsible for a decline in the poverty rate from 29.7 percent in 1967 to 12.9 percent in 2023, based on an anchored version of the SPM that uses a poverty line tied to what families spent on basic necessities in 2023 adjusted back for inflation.^[59] (See Figure 10.) Not counting government assistance, poverty fell only modestly over that period, which indicates the strong and growing role of anti-poverty policies.

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The increasing effectiveness of government policies in reducing poverty has been just as striking among children. This is particularly important given the evidence that childhood poverty has lasting consequences and that reducing child poverty has substantial health and economic benefits.^[60] In the late 1960s, assistance programs were fewer and weaker, and a substantial number of families with children were taxed into poverty; as a result, child poverty was modestly higher after accounting for government benefits and taxes. In 2023, in contrast, government benefits and taxes cut child poverty by 37 percent, dropping the child poverty rate from 21.9 percent to 13.8 percent, using the same anchored version of the SPM as above. (See Figure 11.)

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Recent Poverty Trends

Bolstered by pandemic relief measures, government policies produced historic reductions in poverty in both 2020 and 2021, bringing poverty and child poverty to their lowest levels on record in data back to 1967. In both years, economic security programs kept 53 million people above the poverty line, far surpassing the previous record of 38 million people in 2009, SPM analyses show. Public programs transformed what would have been a near-record surge in poverty due to the COVID-19 recession into record one-year declines in overall poverty (in 2020) and children’s poverty (in 2021).

The historic poverty reduction in 2020 and 2021 was driven by four major legislative packages that provided stimulus payments, expanded unemployment insurance, increased nutrition and housing assistance, improved tax credits, and made health coverage more accessible. The three policies that reduced poverty the most were stimulus payments (known as Economic Impact Payments), expansions in unemployment insurance, and the expanded Child Tax Credit.^[61] All three were temporary and were no longer in effect by 2022.

Propelled by the temporary relief, the poverty rate fell from 13.3 percent in 2019 to a record low of 8.7 percent in 2021 before returning to 13.3 percent in 2022 once most of that aid expired.^[62] The number of people in poverty fell by 14.8 million between 2019 and 2021 but then rose by 15.5 million in 2022.

The 2021 American Rescue Plan, which focused particularly on aid for children, helped lower child poverty from 10.7 percent in 2020 to a record low of 6.0 percent in 2021, while the expiration of many of its policies the next year triggered the largest one-year increases on record in the percent and number of children in poverty (the number rose by 5 million children). The law’s Child Tax Credit expansion alone would have kept an estimated 3 million children above the poverty line in 2022 if it had been renewed, as President Biden and many in Congress supported.^[63]

Economic Security Programs Reduce Poverty, and Narrow Racial Inequities for Children

Looking back over the last half-century, economic security programs such as Social Security, food assistance, refundable tax credits, and housing assistance have not only lifted millions of people above the poverty line but also reduced key measures of racial and ethnic inequity in children’s exposure to poverty. But economic barriers and the effects of structural racism — including past and ongoing discrimination and other obstacles to employment, education, housing, and health care — remain large, keeping poverty rates much higher for some racial and ethnic groups than others.^[64]

Ample research suggests that government economic assistance can improve important outcomes, such as school performance, health status, and later earnings, for children in families with low income.^[65] Because child poverty has long-lasting negative impacts on children’s future prospects, taking steps that will lower and ultimately end child poverty and eliminate differences in the incidence of poverty by race and ethnicity are necessary for ensuring that all children have access to opportunity.

Between 1970 and 2023, the poverty rate fell for all groups, but it fell more for Black and Latino people (by 34 and 28 percentage points, respectively) than for white people (11 percentage points), we calculate using the SPM anchored to 2023. Even with this reduction, the poverty rates for Black (18.5 percent) and Latino (21.0 percent) people in 2023 remained far above the white poverty rate (8.9 percent).

Stronger economic security programs deserve much of the credit for progress against poverty. In 1970, families’ government benefits and the taxes they paid lowered the white poverty rate by 2 percentage points and the Black poverty rate by 1 percentage point and raised the Latino poverty rate by 3 percentage points. In 2023, in contrast, government benefits and taxes lowered the Black poverty rate by 14 percentage points, white poverty by 11 percentage points, and Latino poverty by 9 percentage points.

For children, poverty and racial inequities were much smaller in 2023 than five decades ago, but still glaringly large. Between 1970 and 2023, the poverty rate fell by 40 percentage points among Black children, 36 percentage points among Latino children, and 14 percentage points among white children. In 1970, the poverty rates for Black and Latino children exceeded those for white children by 39 and 37 percentage points, respectively. In 2023, these differences were 13 and 15 percentage points, respectively.

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Economic security programs play a critical role in lowering child poverty — and enhancing opportunity — and narrowing racial and ethnic inequities. In 2023, the poverty rate was roughly 23 percentage points higher for Black children than for white children before accounting for government assistance and taxes but 13 percentage points higher after accounting for them. Similarly, government assistance and taxes reduced the difference between the Latino and white child poverty rates from 21 percentage points to 15 percentage points. (See Figure 12.)

Among AIAN and Asian American and Pacific Islander (AAPI) children, poverty has fallen substantially over the last 35 years, dropping by 31 and 22 percentage points, respectively, between 1987 and 2023. The increasing effectiveness of economic security programs in reducing child poverty contributed to those declines. In 1987, the first year data for these groups became available, government benefits and taxes lowered the AIAN child poverty rate by just 1 percentage point and increased AAPI child poverty by 2 percentage points; in 2023 they lowered AIAN and AAPI child poverty by 16 and 5 percentage points, respectively.

Despite this progress, past and present discrimination and inequities in both the private sector and public policies keep child poverty rates higher for Latino, AIAN, Black, and AAPI children than for white children. In 2023, 22.0 percent of Latino children, 20.6 percent of Black children, 18.2 percent of AIAN children, 13.4 percent of AAPI children, and 7.4 percent of white children lived in poverty.

Trends in Poverty and Deep Poverty May Differ

Examining income trends among people with incomes below the poverty line can reveal patterns not visible in standard poverty data and provide a more complete picture of the economic well-being of people with the least income. For example, deep poverty — the share of people with incomes below half of the poverty line — may increase even if the poverty rate is falling. 

A CBPP analysis found that during the first decade after policymakers made major changes in the public cash assistance system in the mid-1990s, the share of children in single-mother families with incomes below the poverty line fell but the share living in deep poverty rose.^[66] These policy changes made SNAP and cash assistance from Temporary Assistance for Needy Families (TANF) less available and accessible to families with the lowest incomes while simultaneously expanding tax credits for low- and moderate-income families with significant (if low) earnings. Leading academic experts have noted that the focus of government assistance shifted during that period away from children in families with the least income and toward those with modestly higher incomes.^[67]

Appendix

Changes in CBO’s Methodology

CBO’s methodology for analyzing the distribution of household income and taxes changed little between 2001 and 2012. CBO’s primary measure to rank households and calculate average federal tax rates was a broad measure of “before-tax income” that included both “market income”^[68] and a broad set of government transfers. The latter included both social insurance benefits (Social Security, Medicare, unemployment insurance, and workers’ compensation) and means-tested transfers, both cash and in-kind, such as Medicaid and CHIP benefits, SNAP benefits, and TANF cash assistance.^[69] “After-tax income” equaled this “before-tax income” minus federal individual and corporate income, payroll (social insurance), and excise taxes.

In its 2012 distributional analysis covering the years 1979-2009, CBO made three significant changes to its methodology for computing income trends. One concerned who bears the burden of corporate income taxation, and a second concerned how CBO values government-provided health insurance such as Medicare and Medicaid.^[70] CBO also made a third consequential decision to switch from a version of the consumer price index (CPI) to the personal consumption expenditure (PCE) price index in calculating real income (i.e., income after adjusting for inflation). The PCE index generally shows lower inflation than the CPI and hence faster real income growth.

In previous reports, CBO had assumed that the entire burden of corporate income taxes fell on owners of capital, so it subtracted 100 percent of corporate tax payments from the income of owners of capital in calculating after-tax income. Based on a review and analysis of the economic literature, CBO changed to allocating 25 percent of the corporate tax burden to workers and the remaining 75 percent to owners of capital.

CBO’s previous method for measuring the value of government-provided health insurance aimed to measure the extent to which this coverage frees up income that a household can then use to meet basic food or housing expenses. That method capped the value of government-provided health insurance that is counted as income at the smaller of the actual cost to the government of providing the insurance and the maximum amount the household could afford to pay for health insurance without compromising its ability to meet other basic needs. The revised method that CBO put in place in 2012 uses the government’s average cost of providing health insurance to the household (as CBO has long done in valuing employer-provided health insurance benefits). For many low-income households, however, this approach produces a significantly higher measured income, while leaving the amount of cash income actually available to meet other basic needs unchanged.^[71]

In 2018, CBO made another substantial change, switching to using “income before transfers and taxes” to rank households and calculate effective tax rates. Broadly speaking, income before transfers and taxes consists of market income plus social insurance benefits, such as Social Security and Medicare. More specifically, it includes all cash income (including non-taxable income not reported on tax returns, such as child support), taxes paid by businesses,^[72] employees’ contributions to 401(k) retirement plans, and the estimated value of in-kind income such as Medicare and employer-paid health insurance premiums. One effect of this change appears to be to shift more seniors with substantial Medicaid benefits — which, as a means-tested entitlement, aren’t counted as income under this sorting method — into the bottom fifth of the income distribution.^[73]

As part of this 2018 revision, CBO also created its second new measure, “income after transfers and taxes.” It consists of the former “after-tax income” plus means-tested transfers, such as Medicaid and SNAP.^[74]

CBO states that the former method of using after-tax income for ranking was appropriate for analyzing the effects of federal taxes, but with the growing importance of means-tested transfers, the change allows the agency to analyze both means-tested transfers and taxes on the same basis.

Together with the 2012 change in the treatment of government-provided health insurance, this change appears to strongly affect income trends for the poorest households, substantially raising the level and rate of growth of their measured income. Between 1979 and 2019 (the last pre-pandemic year), for example, merely excluding the value of Medicaid and CHIP from income would reduce estimated income growth among the bottom one-fifth of households to 53 percent, from 97 percent, using CBO’s preferred income measure (that is, income after transfers and taxes) and method of ranking households (by income before transfers and taxes).