Economic Research: How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways To Change The Tide Chart 1 The Distribution Of Household Income Has Become More Concentrated Over Time —— Market income —— Before-tax income --==« Aftertax income (Gini coefficient) 0.60 a _ 0.50 ; i i ne Nl 0.45 > a me a ” = a? % a* ye 0.40 + = — 035 -— 0.30 ed a ee, ed a ed LS & Ss PP PP LP OP FS FEF SP Source: Congressional Budget Office. Note: See Glossary of Relevant Terms for definition of Gini coefficient. @ Standard & Poors 2014. Although a 2011 CBO report demonstrated that real net average U.S. household income grew 62% from 1979-2007, household income growth was much more rapid at the higher end of the income scale than at the middle and lower end. Revisiting the issue in 2013, the CBO showed that after-tax average income soared 15.1% for the top 1% from 2009 to 2010--but grew by less than 1% for the bottom 90% over the same time period, and fell for many income groups (5). Additionally, although the Census Bureau estimates that real mean household income increased 0.2% in 2011 and 2012, it declined for all groups other than those in the top fifth of earners (6). This concentration of household income follows a long period in which income concentration remained relatively flat. Using US. tax returns, economists Thomas Piketty and Emmanuel Saez found that income concentration dropped dramatically following both World Wars and was roughly unchanged for the next few decades (7). It started climbing again in 1975, reaching pre-World War I levels by 2000--and Saez later observed that U.S. income inequality has now reached levels not seen since 1928 (8). In both cases, a similar pattern was in evidence--a boom in the financial sector, over-leveraged lower-income households, a massive, systemic financial crash--and the two worst economic slumps in US. history, the Great Depression and Great Recession, followed. WWW.STANDARDANDPOORS.COM/RATINGSDIRECT AUGUST 5,