A new report on economic inequality contains some old news. The gap between top earners and the rest of the population continues to grow. For Minnesota, the only good news is, it could be worse.
The study by the Center on Budget Policy and Priorities compared income growth rates in each state for three comparable periods in the business cycle over the last two decades. CNN/Money reports it found:
The income gap between the rich and the rest of the population is widening. In 22 states, the top fifth of families made more than seven times what the poorest fifth took home, according to the report. In the late 1980s, only one state — Louisiana — had such a spread. Meanwhile, in more than two-thirds of the country, the wealthiest saw their income grow more than twice as fast as the middle-class over the past two decades.
In Minnesota, the gap was greatest between the top and middle fifths, with top earners seeing average income gains of 50.7 percent over the past two decades, compared to 28.1 percent for the middle. Compared to other states, our rate of growth in inequality was about average (27th) and the size of the gap between the top and the middle ranked 36th. [Download MN summary pdf]
It's worth noting here that the study looked at average incomes and did not track individual households, which would give a more complete picture of changing prosperity for families. (I've written more about that here.) But the trend — driven by wage stagnation at the bottom and growth in forms of income such as rent, interest, dividends and capital gains at the top — is still unmistakable.
The benefits of economic growth were broadly shared for a few years in the late 1990s — the only period in the past two decades for which this was true — but this broad-based growth ended with the 2001 downturn. Once the effects of the recession were left behind, the trend toward greater inequality quickened, as the incomes of the richest families climbed while those of low- and moderate-income families stagnated or declined.
The report also points out that some government policies contributed to the expanding wage and income disparity, including deregulation, trade liberalization, ineffective labor laws and tax changes.
Many states made their tax systems more regressive during the 1990s. Early in the decade, when a recession created budget problems, states were more likely to raise sales and excise taxes than income taxes. Later in the decade, when many states cut taxes in response to the strong economy, nearly all chose to make the majority of the cuts in their income taxes rather than sales and excise taxes.
With the current recession, states are
again likely to shift costs to regressive taxes and fees, while resisting
investment in education, infrastructure and social programs that can
help increase participation in the economy. If recent post-recession
patterns hold, the wealthiest families will see their incomes resume
healthy growth; the other 80 percent will emerge farther behind than
— Charlie Quimby