Over the past 20 years or so, the amount of money earned yearly by the lowest income New Jerseyans has risen by nearly 25% That sounds like good news-until you find out that during the same period the income of the most well-off people in the state went up by so much more than that as to make the gains of the people near the bottom fairly insignificant. In fact, the income of the richest 5% of New Jerseyans grew by more than five times as much as that of the bottom fifth of households in the state.

These are major findings of a new report on income inequality. The gap between the richest and the rest in New Jersey is getting wider, and in some instances the disparity is worse here than in any other state. The report, Pulling Apart, was released today by two Washington-based organizations, the Economic Policy Institute and Center on Budget and Policy Priorities. The report, based on Census Bureau data, compares average incomes in the early 1980s to the early 2000s.

Income disparity information is obtained by dividing a state's population into five equal parts and then comparing income trends for each group. New Jersey's reality is stark. Between 1980-82 and 2001-03 the average yearly income of New Jersey's bottom 20% rose by 24.4%, to $20,391 from $16,397. But, during the same period, the yearly income of the top 20% rose by 78.7%-to $153,362 from $85,802.

When only the top 5% of New Jersey earners is considered-the richest of the rich-what happened is even more dramatic. This group saw its average income rise to $268,889 from $115,939. That is an increase of almost 132%. The national average increase was 84.7%. Among the 11 states large enough for a comparison, New Jersey's top 5% had the greatest percentage rise in the nation and it was one of five states where that increase exceeded $100,000.

Overall, New Jersey ranks 9th nationally in the size of the income gap between the top 20% and the bottom 20%. In New Jersey, the top group has an average income 7.5 times that of the lowest group. New York and Texas led the nation, with a ratio of 8.1. Closely behind were Tennessee and Arizona, 7.7; Florida, California, Louisiana, Kentucky, 7.6. The national average is 7.3.

In few states has the top-to-bottom ratio over 20 years grown by more than in New Jersey. In 1980-82, New Jersey's top-to-bottom ratio was 5.4, so the 20-year growth was 2.3 points. The only states where the gap widened by more than that were Arizona, 2.6; New York and Massachusetts 2.5; and Tennessee 2.4. In the nation as a whole the growth was 1.8.

When the top 5% of the population is compared to the entire bottom 20%, New Jersey's top-to-bottom divide grows even more. In 1980-82 this group made on average 7.1 times more than the bottom 20%; in 2001-03 it had risen to 13.2 times. While by a less dramatic margin, the top also is pulling away from the middle.

AVERAGE INCOMES OF NJ FAMILIES
in 1980-82, 1990-92 and 2001-03

WHAT DOES IT MEAN?

Income inequality continues to grow in New Jersey and in the nation; the gap between the richest and the rest is getting wider. This has been the general trend for 30-some years. As James Lardner, senior fellow at the New York-based organization Demos put it in a recent book called Inequality Matters, "Sometime in the late 1970s, our economy began to go a different way, sending most of its rewards to those who already had the most. The result is a concentration of income and wealth that is not only higher than it has been since the 1920s, but higher than that of any of the world's other developed nations." From the end of World War Two until the 70s, income in the U.S. was becoming more equal, not less. For example, between 1947 and 1973 the average income of the bottom fifth in the nation more than doubled while the income of the top fifth rose by 85%.

But this is about more than numbers. Persistent, widening income inequality eats at the American ideals that working hard should pay off, and that everyone who contributes to growing national prosperity should increasingly share in it. Lardner again: "You don't have to be carrying a brief for envy or 'class warfare' to be concerned about the emotional impact of rising inequality on those who are bombarded by advertising for things they will never be able to afford, or who find themselves on a career ladder that is going nowhere."

Indeed, there is growing evidence that a widening income gap leads to poor health outcomes, growth of inadequate housing and disparity in educational opportunity. It is hard to overstate the implications of letting such a situation continue. As Daniel Webster warned more than 200 years ago, "Liberty cannot long endure in a country where the tendency is to concentrate wealth into the hands of a few."

A 1999 analysis on income inequality published by NJPP observed that there might not be a question more fundamental to the wellbeing of our economy, security of our social structure and state of our politics than the three words, "who gets what?" While there is no ideal, and no one suggests that each 20% of the population should get 20% of income, inequality as wide as we see today-and the fact that the gap keeps growing-is simply not good for anyone over the long term.

Nor is the gap simply the result of uncontrollable economic forces. Specific policies have contributed to the widening gap, like federal tax cuts disproportionately going to high-income households and cuts in programs that help people to help themselves up the ladder.

WHAT SHOULD BE DONE?

While many of these are federal policies that require federal action there is a lot that can-and should-be done at the state level. Recently New Jersey has taken two actions that might have eased the gap since the years the data cover (although national trends that tend to heighten income inequality have strengthened at the same time). One is the 2004 increase in the state income tax for households making over $500,000 a year. The other is the minimum wage increase o $6.15 an hour from $5.15 that took effect last October.

They are promising starts. Here are some other steps New Jersey should take to address income inequality and redress federal programs that make it worse.

• Expand the state Earned Income Tax Credit so that eligibility is the same as for the federal EITC. New Jersey cuts off eligibility at $20,000. All the other states with an EITC use the federal EITC's sliding eligibility scale, adjusted yearly, which in 2005 allowed benefits up to an income of $35, 263, depending on family size.
• Raise the threshold for paying state income tax. Today, families owe no New Jersey state income tax until they have earned $20,000. They should be allowed to make at least $30,000.
• Undo the state income tax cuts of 1994-96 that have cost the New Jersey about $15 billion in revenue that could have been used to help the most vulnerable and that make the tax structure less progressive. Besides producing much-needed revenue, this also would help to address a state and local tax structure that requires the lowest income households to pay more than twice the share of their income in major taxes as the wealthiest households pay.
• Join the states that automatically adjust the minimum wage yearly to keep up with increases in the cost of living.
• Increase the State Rental Assistance Program that helps low-income people afford a decent place to live in a state where average apartment rents are 3rd highest in the nation.
• Establish a child care tax credit, which most states have, so low-income families can more easily balance the demands of job and family without losing ground economically.

For more information on the national Pulling Apart report, go to:
http://www.cbpp.org/1-26-06sfp.htm

TAX REFORM

WORK & WAGES

BUDGET & FISCAL POLICY

TRANSIT ISSUES

ECONOMIC DEVELOPMENT

VOTING & GOVT REFORM

© 2008 New Jersey Policy Perspective