Take three provinces in the northeast of China as a whole area, this paper uses Theil index and its decomposing method. On the basis of analyzing the income gap of urban residents in the Northeast and the corresponding contribution share and by introducing transfer income into the measurement frame, this paper finds that the income gap of urban residents in the Northeast has enlarged, and the income distribution of different people has turned worsened, but the difference between three provinces has become small. The government's transfer payment did not become the means of reducing income gap, contrarily it aggravated the income inequality.