(Augusta, ME) It doesn’t take a national report for most Mainers to know their incomes are stagnating or that they are working harder than ever to stay in the same place. With the long winter, extraordinary gas and oil prices, the housing crisis, rising food and health insurance prices, even staying in the same place is beginning to feel like wishful thinking. “Pulling Apart, a State-by-State Analysis of Income Inequality” released today, finds that in 37 states, including Maine, the incomes of the bottom fifth of families has grown far more slowly than the incomes of the top fifth of families since the late 1980’s.
The report finds that inequality is growing in Maine, though at a slower rate than the nation as a whole. The average income of the bottom fifth of families in Maine is $18,302 versus $180,973 for the top fifth. Still further up the income scale, our highest paid CEOs, earn between $900,000 to $2 million a year. By contrast, the average Fortune 500 CEO salary in states with high income inequality, like New York or California, can range between $40 million to $322 million.
While it may be some consolation to know that Maine’s ranking (33 out of 50 states) shows a smaller gap between those at the top and the rest of us, it is also the case that Maine’s lower overall levels of income impose other burdens on low-income Mainers. Close to one-in-ten workers in Maine are multiple job holders – 1.5 times greater than the national rate. Maine’s multiple job holding rate has been higher than the U.S. average since 1995 and the gap has slowly widened over the last few years.
Analyzing data through the mid 2000s – the most recent period when state data are available – the report shows that since 2000 the incomes of the poorest families and of middle-income families have stagnated or declined. The incomes of the richest families, in contrast, have been growing quickly after recovering from the burst of the stock market bubble. In the 37 states with widening gaps, the incomes of the richest families have grown by an average of $36,300 (39%) while the incomes of the poorest have grown by only $1,600 (9%). Adjusting for inflation, the purchasing power of the poorest families has increased by just $93 per year.
“Before the recent downturn hit, our economy was generating solid income gains,” said Jared Bernstein, a senior economist at the Economic Policy Institute and co-author of the report. “The problem was that high levels of inequality meant these gains failed to reach middle- and low-income families, whose living standards stagnated or even declined. As we head into an economic downturn, these families are ill-prepared to weather the storm.”
Pulling Apart is a joint research project of the Economic Policy Institute and the Center on Budget and Policy Priorities. The report focuses on the distribution of after-tax income and includes income from government transfer programs such as TANF and the cash value of food stamps. The report is based on US Census income data that have been adjusted to account for inflation, but does not include capital gains income and thus underestimates growth at the top. It also does not take into account the number of high net-worth individuals who own second homes in states like Maine and the effects this out-of-state wealth has on rising property taxes and the cost of home ownership. Key findings from the analysis of state trends include:
· Very high income families benefited most over the past twenty years. On average, the incomes of the richest five percent of families jumped 60 percent between the late 1980’s and the mid 2000’s while the incomes of the poorest fifth of families grew only 11 percent.
· It is not only the poor who failed to share fully in rising national prosperity. Over the past two decades, the gap between high-income families and families in the middle fifth of the income distribution also grew in seven of every ten states.
· The ten states with the largest top-to-bottom ratios were New York, Alabama, Mississippi, Massachusetts, Tennessee, New Mexico, Connecticut, California, Texas and Kentucky.
Income inequality of the magnitude described in this report is at odds with the American ideal that hard work should lead to an increasing standard of living. Unfortunately, the rungs on the ladder to success are now seriously distorted. Being in the middle class no longer means being halfway to the top, and for people at the bottom, even getting a toe-hold is becoming more difficult. Rising income inequality affects not only our daily lives and the pursuit of our dreams, it sets the stage for the future health of our economy and our national morale.
Government policies – in particular, tax policies – can push back against the widening inequality that results from economic trends. States can help mitigate the problem and prevent widening gaps in income inequality. Some of the prescriptions include:
- indexing the minimum wage to inflation,
- improving unemployment compensation,
- maintaining social safety nets and
- monitoring taxes, fees and tax credits to prevent unfair burdens on those of moderate- or low-income.
As this report shows, income inequality is a national problem and as such will not be solved without national policies that reflect new priorities and political will.
The full report, press release, and state fact sheets are available under embargo at: http://www.cbpp.org/4-9-08sfp.htm.