The Economy Is Booming for California’s Wealthiest Households

California’s highest-income households continue to reap the rewards of the current economic recovery, according to the latest data. Last week, the Franchise Tax Board (FTB) released figures showing that during this economic recovery, households at the top of the income ladder have seen disproportionately large income gains compared to low- and middle-income households, continuing a generation-long trend of widening income inequality in California.

Since the end of the Great Recession, incomes for the top 1 percent of California households have jumped, while incomes for low- and middle-income households have barely budged. Between 2009 and 2013, the average adjusted gross income (AGI) of the top 1 percent rose by over 28.5 percent, whereas the average income for the bottom fifth of households grew by only 3.4 percent. Meanwhile, the average income for the middle fifth of households actually fell by 2.1 percent (see chart below).

5-21 May Revenue Estimates - Income Inequality-01-01

These recent income trends continue decades of widening income inequality in California. Even though the top 1 percent see steeper income losses during recessions than do other households, inequality has continued to worsen. This is because over the past two economic expansions — the expansion following the 2001 recession and now the expansion following the Great Recession — incomes for California’s low- and middle-income households have been stagnant, while high-income households have seen their incomes recover quickly. The result is that over the long run, total income in California has become increasingly concentrated among the highest-income households. For example, in 1987, the top 1 percent of households in California held 13.0 percent of all AGI in California. In 2013, that share was 21.8 percent, which is more than the entire bottom 60 percent of households combined.

These latest figures are further evidence that California’s economic recovery is failing to produce broad-based growth. As policymakers move forward in crafting this year’s budget, they should seek to develop a budget that reflects the economic reality facing so many of California’s families. This means reinvesting in the core public services and supports that reduce economic hardship and help families climb the economic ladder.

— Luke Reidenbach