NC among states with fastest-growing income inequality

From the NC Justice Center:

RALEIGH (November 15, 2012) — Income gaps widened in North Carolina between the late 1990s and the mid-2000s, as they did for the country as a whole, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute.

North Carolina ranks 12th-worse among states for the greatest increase in income inequality between the top fifth and middle fifth from the late 1990s to mid-2000s. Among the eleven states for which data is available, North Carolina’s ranking drops to 6th-worse for the greatest increase in income inequality between the richest 5 percent and the middle fifth over the same period.

“As state policymakers prepare for the coming legislative session and tax reform, they should propose policies that narrow—rather than widen—the income gaps between the richest and lowest- to middle-income residents,” said Alexandra Sirota, Director of the Budget and Tax Center, a project of the North Carolina Justice Center. “Tax policies have an important role to play in fighting growing income inequality. Proposals to fix the problems with our revenue system should not benefit higher-income taxpayers at the expense of middle-income taxpayers.”

The report, Pulling Apart: A State-by-State Analysis of Income Trends, released in North Carolina in coordination with the Budget and Tax Center, finds that low- and moderate-income North Carolinians did not share in the most recent economic expansion:
The incomes of the richest fifth of households grew by 5.5 percent ($8,054) while those of the poorest fifth fell by 3.7 percent ($735) from the late 1990s to the mid-2000s, and
In the late 1990s, the income of the richest fifth of North Carolina households was 7.4 times the income of the poorest fifth, but by the mid-2000s that ratio had grown to over 8.
Between the late 1990s and the mid-2000s, income inequality in North Carolina grew not only between low- and high-income households but also between middle- and high-income households. Middle-income households saw their incomes fall by 3.4 percent ($1,978), while the top fifth saw their income rise by 5.5 percent ($8,054).

“The drop in incomes among North Carolina’s poorest households is particularly troubling,” said Tazra Mitchell, Budget and Tax Center fellow. “Growing up in poverty is harmful to our state’s children and affects everything from their performance in school to their earnings as adults. Addressing the overall regressivity of the state’s tax system by extending the state’s Earned Income Tax Credit is an important way to help struggling families move up the income ladder.”

The income gap between the very richest and bottom earners increased even more dramatically. The incomes of the richest 5 percent of North Carolinians grew by nearly 9 percent ($20,645) over the same period. By the mid-2000s, the top 5 percent of North Carolina households had nearly 13 and a half times the income of the bottom fifth, up from roughly 12 in the late 1990s.

Nationwide, incomes fell by close to 6 percent among the bottom fifth of households, on average, while rising by 8.6 percent among the top fifth, during this period. Incomes grew even faster — 14 percent — among the top 5 percent of households.

In North Carolina, the jobs deficit, and growth in low-wage jobs represents primary causes of the widening income disparity. Income inequality is rising in states across the nation for a range of reasons, including long periods of high unemployment, more intense competition from foreign firms, a shift from manufacturing to service jobs, and a minimum wage that has not kept up with price increases.

Some of the reasons for growing income inequality are outside of the control of states. However, growing income inequality is not inevitable. North Carolina policymakers can take a number of steps to help address the disparity between the rich and poor. Recommendations include:
Make North Carolina’s tax system less regressive.
Improve the unemployment insurance system.
Strengthen supports for low-income workers.
Raise the minimum wage and/or index it to keep pace with rising costs.
Growing income inequality is harmful to family economic well-being and threatens economic growth. “As the American Dream slips out of reach for many North Carolinians, it is critical for policymakers to rebuild economic opportunity and shared prosperity for all of the state’s residents,” said Sirota.