Income Gap Narrower by Treasury's Measure

The income gap between rich and poor in the United States has shrunk in recent years, Treasury Secretary John W. Snow said yesterday, addressing an issue frequently raised by critics of President Bush's economic policies this election year.

"There has been a decline in the inequality" from a high point in 2000 through 2003, the most recent year for which figures are available, Snow said during a meeting with reporters yesterday, referring to Treasury data based on tax returns.

The top 5 percent of Americans, ranked by income, earned 15.4 percent of the nation's after-tax income in 2003, down from 19 percent in 2000, Treasury figures show. The bottom 20 percent took home 2.5 percent of all U.S. after-tax income, up from 2.3 percent in 2000.

But much of the decline in inequality during that period reflected the popping of the stock market bubble, which peaked in 2000, when executives pocketed fat bonuses and stockholders reaped huge profits from selling shares, according to economists inside and outside the Bush administration. The fall in stock prices during those years disproportionately affected high-income households and helped compress the distribution of income.

The Treasury data, which include profit from the sale of stocks and other capital gains, also show that the gap was still larger in 2003 than in 1990, when the top 5 percent of earners took home 12.9 percent of the nation's income.

And census data, which do not include capital gains, show that income inequality grew from 2000 to 2003 and increased again in 2004, continuing a quarter-century trend.

Administration critics said the income figures in 2000 were an anomaly, reflecting the overheated stock market. "If you look at it over a longer period, the trend toward rising income inequality has continued unabated," said Leonard E. Burman, a former Clinton administration Treasury official who is a senior fellow at the Urban Institute.

President Bush's tax cuts in 2001 and 2003 made income inequality "a lot worse," Burman said.

President Bush's approval rating has been falling, making Republicans nervous about the congressional elections this year. A Washington Post-ABC News Poll conducted this month found that 51 percent of respondents disapproved of how Bush is handling the economy, and 62 percent said he does not understand "the problems of people like" themselves.

Snow attributed those poll numbers to a lag between recent improvements in the economy and people's perceptions of that strength, overlaid by anxieties about the war on terrorism, high gasoline prices and unease about the implications of globalization for U.S. workers.

The economy has grown at a robust pace for the past two years, consumer spending is rising and businesses are hiring, he said, calling those indicators "the poll that counts."

Snow acknowledged that the income gap has grown over recent decades.

Family income inequality declined from 1946 through 1969, census data show. Inequality increased slowly from 1970 through 1979 and "has increased somewhat faster since then," wrote Frank Levy, an economics professor at the Massachusetts Institute of Technology, in an analysis posted on the Census Bureau's Web site.

In 2000, the median household income for the top 20 percent of earners was 14 times the comparable figure for the bottom 20 percent, census figures show. By 2003, the top group earned 14.7 times more; by 2004; it earned 14.8 times more. All the census figures are adjusted for inflation. The median is the midpoint, at which half of all families earn more and half earn less.

Snow also asserted that the economic recovery from the 2001 recession is "a little better" than the rebound from the 1990-91 recession. He pointed to Treasury data showing that median household income had declined each year from a peak in 2000 through 2004, the most recent year for which figures are available. He noted that the drop was shallower than a similar slide during the four years after income peaked in 1989.

But census data also show that median household income declined for three consecutive years after the 2001 recession ended; income declined for just two years after the earlier recession and was rising by the third, noted Lee Price, research director of the Economic Policy Institute.

"Things are still not improving for average people," Price said, noting that the income figures are adjusted for inflation, which has flared in recent years as energy prices have risen. "Because inflation picked up, people in the middle are not getting ahead."