Gross Domestic Product measures the value of all output produced by a country for final sale. Because all such output is either sold or added to inventories, output in national accounting equals income. Sales are income to companies and most of that is passed on in the form of wages, while the much smaller additions to, or subtractions from, inventories are included in investment.  So Gross Domestic Product can, and is, also referred to as Gross Domestic Income. Here is how the US national income was distributed in 2019.

Table 11: How National Income Was distributed in 2019. Source: BEA Tables 1.1.5 and 6.5D

The value of all the stuff produced in the US in 2019 was around $21 trillion, and if one divides that by the population of 328.3 million, including children and retirees, one gets a per person output of about $65,000. Output is nearly $153,000 per full time worker equivalent^[1]. But not all of that money can be spent on personal consumption, machines need to be replaced, businesses need to build new plants, houses and roads have to be built, we need a military and research, and schools and teachers have to be paid for if our economy is to continue functioning and growing. These necessary expenses come out of total national income through private investment and government spending financed by taxes and borrowing. The trade deficit is shown as “net exports of goods and services” in Table 11, and as we have seen in the section on trade, represents borrowing money and selling assets to finance current consumption. At 3% of GDP the trade deficit is about as large as Federal Government discretionary spending without defense. Social Security and other social programs are not directly spent by the government, these “transfer” programs redistribute money, so the spending shows up in personal consumption expenditures.

“Personal consumption expenditures” in Table 11 do not tell us how much Americans earned on average because part of personal income is saved. The Bureau of Economic Analysis also publishes data on total personal income and its sources as shown in Table 12 below.

Table 12: 2019 Sources of Personal Income. Source: BEA Table 2.1

This table tells us a lot about income in the US. For one thing if you divide total personal income of $18.6 trillion by the number of people in the US in 2019, you get a per capita personal income of $56,616 for every man, woman, and child working or not. That amounts to $177,774 for a statistical household of 3.14 people^[2]. Dividing instead by full time worker equivalents (FTE, roughly all the hours worked divided by 40 hours per week for a year) and you get $132,980 for a full-time worker. Using disposable, after tax, income instead, the number is $117,252 per full time worker. The US is a very rich country.

The table shows where this income comes from. Interestingly only 50% of personal income comes directly from wages and salaries, but another 11% is in benefits. Nine percent of all income is earned by business owners. Transfer payments from Social Security, Medicare, and other programs provide 17% of all income but of course reduce aggregate personal income by a similar amount through contributions, also called payroll taxes, as shown in the table.

Absent from this table are capital gains, realized or not. So, if you sell a stock that has gone up $10,000, that is not included as income on this table^[3]. The BEA doesn’t include capital gains because they represent a change in value rather than a product or service that adds to the economy. But of course, when you sell something that is appreciated in value, you do have more money to spend which is equivalent to earning more. We will include a discussion of capital gains later when looking at income distribution and certainly also wealth distribution. 

Without considering capital gains, how was total disposable income of $16 trillion distributed amongst the population? There are a number of ways to slice income distribution. At a high level we can look at the income “pie” and ask how the slices are distributed. Are they all more or less equal? We know that isn’t the case, but how unequal are they and how has that changed over time? Below is a graph, admittedly not a pie, which shows the distribution of income in 10 groups of equal numbers of households. The 10% of households with the lowest income are in the first group, the next lowest 10% in the second group, and so on. Because the groups have the same number of households, this chart also shows the relative portion of total personal income each group gets, as well as the 2019 mean income for the group.

Figure 34:  US mean (average) household income by decile group. Note that since the groups include the same number of households, this also shows the distribution of income: the 0-10% group has 1.8% of the total income while the 90-100% group has 36.6% pre-tax. The small black rectangles on the first and last bars are $10,000.  Data source: https://www.bea.gov/data/special-topics/distribution-of-personal-income WW126

From this chart it is readily apparent that the bar representing the 10% of households with the highest incomes is out of proportion to the other bars. The bars from 0 to 90% of households go up in a sloped line, but the last bar sticks out way above that line. One reason is that that last bar includes a small percentage of households with truly huge incomes which brings up the mean (aka average) for that bar. If one takes out the very top 1%, the average household income in the highest income decile goes down from $525,070 to $383,743 indicating the skewed nature of the distribution. That distribution at the high end is illustrated by the Congressional Budget Office graphic below.

Average Household Income Before Transfers and Taxes, 2019     Figure 35 Average Household Income Before Transfers and Taxes, 2019. Includes capital gains. Source: “The Distribution of Household Income, 2019.” Congressional Budget Office. July 29, 2022

The chart below, which includes realized capital gains, shows where income comes from for households grouped by quintiles, with details for the very top of the distribution.

Composition of Income Before Transfers and Taxes, 2019     Figure 36: Percent Composition of Income Before Transfers and Taxes, 2019. Source: “The Distribution of Household Income, 2019.” Congressional Budget Office. July 29, 2022

Most income, right up to the 99th percentile, comes from labor, while the truly extraordinary top incomes come mostly from capital income and realized capital gains. We should note in this chart that while the percentages from labor are similar in the quintiles up to the 99th percentile, the total incomes for each quintile are not, as we have seen. Means-tested transfers such as Medicaid, CHIP, SSI, and SNAP are not shown on this chart, but they add considerably to the incomes of the lowest quintile, most of that, 80%, is Medicaid which is somewhat different from disposable income.

Here are some other ways to slice income, including transfers but excluding unrealized capital gains:

The charts we’ve just looked at give a pretty comprehensive account of the current distribution of income in the US, but don’t really tell one about who falls in each group, how they make their income (other than the top 0.1%), or how the distribution has changed over time. We’ll take a look at the various components of income with a view to answering those questions. 

^[1] Full time worker equivalent (FTE) means dividing the total hours worked by what is considered full time hours (think 40 hours per week) in an industry. So, two workers working 20 hours per week might count as one full time equivalent worker.  

^[2] Households include everyone living together. Families are all related people living together. Family size was 2.52 in 2019, while household size was 3.14.

^[3] Capital gains taxes on the other hand are shown.