A report from the Congressional Budget Office examines the distribution of household income before and after government transfers and federal taxes.  From 1979 to 2007, real (inflation-adjusted) average household income, measured after government transfers and federal taxes, grew by 62 percent. During that period, income for households at the higher end of the income scale rose much more rapidly than income for households in the middle and at the lower end of the income scale.  Growth in income during this time period was:

·        275% for the 1% of households at the highest end of the income distribution

·        65% for households in the top 20% of the distribution (excluding the top 1%)

·        40% for households in the middle of the income distribution

·        18% for the 20% of the population with the lowest income 

As a result of the increasingly uneven distribution of income, the after-tax income of the top 20% highest earning households exceeded the after-tax income of the remaining 80% of households.

The study finds that, while the largest contributor to increasing income inequality was an increasing concentration of market income, shifts in government transfers and federal taxes also contributed.  A smaller percentage of government transfers went to households in the bottom quintile of the income distribution.   At the same time, federal taxes shifted from progressive income taxes to less progressive payroll taxes.