A steady stream of research describes rising income inequality in the U.S. since the 1970s. Beneath this familiar story, however, are a variety of state experiences. In this dissertation, I develop and test a new theory to explain why income inequality varies in the states over time. My partisan political-economy theory for state inequality builds on political explanations for national inequality; but it takes a step further to recognize and incorporate variation in state governments, which do most of the governing and policymaking in our federal system. I demonstrate that shifts in state government party composition, and related policy shifts, are a fundamental determinant of over time changes in state-level inequality between 1970 and 2005. First, controlling for economic and demographic factors, I find that increases in Democratic control of state government are significantly related to decreases, or diminished growth, of market inequality, while increases in Republican control coincide with increases in inequality. Second, I show how partisanship influences income disparity by identifying policy mechanisms that respond to changes in government partisanship and that also relate to changes in inequality: state public sector employment, minimum wages, and public welfare spending. My results for the former two policies suggest that the parties in state governments shape the distribution of income even before making adjustments with income taxes and transfers; however, those for the latter point to the relevance of state governments for changes in post-tax and transfer inequality as well. Together, the results of my research demonstrate that patterns in income inequality are not simply a function of broader economic shifts, or even policies set by the national government. Rather, the parties or party members we elect to state governments, and their policy decisions, help determine the extent of income disparity in the United States. These findings allow us to say with more empirical certainty that there are political explanations for changes in income inequality in the U.S. throughout the past forty years.