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Income Gap Between Rich and Poor Is Highest in Decades, Data Show

First Posted: 07/08/2010 5:33 pm Updated: 08/10/2012 2:21 pm

The gap between the wealthiest Americans and middle- and working-class Americans has more than tripled in the past three decades, according to a June 25 report by the Center on Budget and Policy Priorities.

New data show that the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest parts of the population in 2007 was the highest it's been in 80 years, while the share of income going to the middle one-fifth of Americans shrank to its lowest level ever.

The CBPP report attributes the widening of this gap partly to Bush Administration tax cuts, which primarily benefited the wealthy. Of the $1.7 trillion in tax cuts taxpayers received through 2008, high-income households received by far the largest -- not only in amount but also as a percentage of income -- which shifted the concentration of after-tax income toward the top of the spectrum.

The average household in the top 1 percent earned $1.3 million after taxes in 2007, up $88,800 just from the prior year, while the income of the average middle-income household hovered around $55,300. While the nation's total income has grown sharply since 1979, according to the CBPP report, the wealthiest households have claimed an increasingly large share of the pie.

Arloc Sherman, a researcher for CBPP, said the income gap is expanding not because the middle class is losing income, but because the wealthiest incomes are skyrocketing.

"If income growth had been shared equally among all income groups, the families at the bottom would have $6,000 per year more than they do now, and the middle would have $13,000 more," he said.

Sherman said one key to closing the gap is a responsible tax policy.

"It would be a big step in the wrong direction to enact proposals like a big rollback in the taxes on the wealthiest estates," Sherman said. "It would probably help to enact some of the middle class tax extender proposals advanced by the President and the Democrats, including things like the extension of the expanded child tax credit."

The CBPP data do not show the effect of the recession that began in December 2007, but economists say that the recession has probably reduced the income gap only temporarily due to the severe drop in the stock market.

"Everyone, rich and poor, has been hammered in this recession," Sherman said. "But in the past, the wealthy have rebounded more easily than the middle."

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  • 10. Massachusetts

    Gini Coefficient: 0.468 Median Income: $59,373 (8th Highest) Households Earning $200,000+: 6.56% (4th Highest) Population Living Below Poverty Line: 10.30% (7th Lowest) Massachusetts has the fourth-greatest percentage of wealthy residents among all the states and the seventh-lowest percentage of people living below the poverty line. However, according to The Massachusetts Budget and Policy Center, "incomes for the highest income families in Massachusetts have grown almost five times as fast as those for low-income families and nearly twice as fast as those for middle-income families," over the past two decades. According to the organization, the inequality gap has increased more during this time in Massachusetts than in 47 of the other states. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 9. Illinois

    Gini Coefficient: 0.469 Median Income: $52,870 (14th Highest) Households Earning $200,000+: 4.47% (10th Highest) Population Living Below Poverty Line: 13.30% (24th Lowest) Illinois has a relatively large percentage of households earning $200,000 or more each year, 4.47% - the tenth greatest amount in the country. The state has the 24th smallest percentage of residents living below the poverty line, in comparison, with 13.3%. This may be due to the state's policies which may be seen as giving preference to the wealthy. This year the state increased its flat income tax from 3% to 5%. According to John Tillman, chief executive of the Illinois Policy Institute, quoted in the State-Journal Register, the tax increase is "especially going to hurt lower-income folks -- those who are just starting out in careers or are struggling for whatever reason, who have incomes in the $20,000-$40,000 range." Worst still, average personal income has decreased 3.2% for the bottom 60% of Illinois wage earners over the past 40 years, according to the Center for Tax and Budget Accountability. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 8. Georgia

    Gini Coefficient: 0.469 Median Income: $43,340 (10th Lowest) Households Earning $200,000+: 3.43% (19th Highest) Population Living Below Poverty Line: 16.50% (12th Highest) According to the non-profit research organization Institute on Taxation and Economic Policy (ITEP), Georgia's tax system is regressive. This means that low-income families pay more of their income in state and local taxes than upper-income families do. The poorest 20% of Georgians have 3.2% of statewide personal income before taxes, but their share of after-tax income is just 3.1%. The best-off 1% of residents enjoys 16.7% of pretax Georgia income, and 17.2% of after-tax income. More than 20% of Georgians are living below the poverty line. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 7. Florida

    Gini Coefficient: 0.469 Median Income: $45,631 (15th Lowest) Households Earning $200,000+: 3.08% (20th Highest) Population Living Below Poverty Line: 14.90% (18th Highest) Although Florida has only the 18th-largest percentage of its population living in poverty in the country, that share is growing quickly. From 2007 to 2009, the poverty rate increased from 12.1% to 14.9%, a growth of 550,000 people. In comparison, the national rate increased from 12.5% to 14.3% over the same period. Additionally, almost 1.2 million of the 2.7 million impoverished Florida residents live in "deep poverty," defined by the US Census Bureau as households with incomes of 50% or less of the federal poverty level. That amounts to $5,478 a year for an individual. Recent tax breaks have been aimed at the wealthy, however. In 2007, both the state's annual intangibles tax and the estate tax were eliminated. "Florida is a low tax state, but not for those living in poverty," reports the Institute on Taxation and Economic Policy. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 6. Mississippi

    Gini Coefficient: 0.470 Median Income: $35,078 (Lowest) Households Earning $200,000+: 1.54% (Lowest) Population Living Below Poverty Line: 21.90% (Highest) Mississippi has the greatest percentage of poor people in the nation, 21.9%. The state has the greatest percentage of households making below $30,000 a year, 42.53%, and the smallest percentage of households making $200,000 or more, 1.54%. Suffice it to say, poverty is a major issue in Mississippi and it is getting worse. From 2007 to 2009, the state's poverty rate increased from 20.6% to 21.9%. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 5. Alabama

    Gini Coefficient: 0.471 Median Income: $39,980 (3rd Lowest) Households Earning $200,000+: 2.13% (9th Lowest) Population Living Below Poverty Line: 17.50% (6th Highest) Alabama has the 5th largest percentage of households making less than $30,000 a year, and the tenth-highest percentage of households making above $100,000 a year. It also has the sixth-highest percentage of people living below the poverty line: 17.5%. From 2008 to 2009, the number of households making $200,000 or more a year fell from 2.3% to 2.1%. The number of households receiving food stamps, however, increased 26% from 2008 to 2009. "We're seeing record numbers on food stamps and insurance programs, and there really is a direct correlation," said Jim Carnes, spokesman for the anti-poverty advocacy group Alabama Arise, in The Birmingham News. "As the poverty rate increases, government services have a greater demand." <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 4. Louisiana

    Gini Coefficient: 0.473 Median Income: $45,433 (14th Lowest) Households Earning $200,000+: 2.54% (24th Lowest) Population Living Below Poverty Line: 17.30% (7th Highest) Louisiana has the seventh-largest percentage of residents both making less than $30,000 a year and living below the poverty line. The bottom 25% of earners make only 4% of the state's income. In comparison, the top 25% of earners enjoy 63% of the income, according to the Louisiana state government. The top 5% make 29% of the income. The good news is that personal income rose 3.1% in Louisiana in 2010, according to the US Bureau of Economic Analysis. This is slightly more than the national average of 3%, and raises Louisiana earnings above 2008 pre-recession levels. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 3. Texas

    Gini Coefficient: 0.474 Median Income: $47,475 (22nd Lowest) Households Earning $200,000+: 3.83% (16th Highest) Population Living Below Poverty Line: 17.20% (8th Highest) Texas has the largest percentage of its population falling either below the poverty line or making more than $200,000 a year, relative to the other states. Just over 21% of the state's population falls into one of these two camps, although most fall into the former group. According to an article from the St. Petersburg Times' PolitiFact.com, Texas had a GINI index of 0.37 in 1970, which increased to 0.42 in 1990, and is now 0.474, implying increasing long-term income inequality. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 2. Connecticut

    Gini Coefficient: 0.480 Median Income: $63,851 (Highest) Households Earning $200,000+: 7.87% (Highest) Population Living Below Poverty Line: 9.40% (4th Lowest) Connecticut is one of the wealthiest states in the country, with the greatest percentage of households earning $200,000 or more a year (7.87%). The disparity between the poor and wealthy is getting worse. According to a 2008 study from the Economic Policy Institute and the Center on Budget and Policy Priorities, income in Connecticut increased by $52,439, or 45%, to $169,378 for the top fifth of Connecticut households, while the bottom fifth's income decreased $4,437, or 17%, to $21,133, from 1989 to 2006. The state has made efforts to begin correcting this issue by increasing the top income tax rate from 4.5% to 6.5%. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

  • 1. New York

    Gini Coefficient: 0.502 Median Income: $50,216 (22nd Highest) Households Earning $200,000+: 6.15% (5th Highest) Population Living Below Poverty Line: 14.20% (25th Highest) New York is a relatively wealthy state. It has the fifth-largest percentage of households earning $200,000 or more a year and has the 25th fewest people living below the poverty line. Regardless, the state has the most severe income inequality among all the states. According to the Fiscal Policy Institute, the top 1% of earners in New York State make about 35% of the state's total income. This is up from 17% in 1990. The bottom 50% of earners, in comparison, make just 9.1% of total income, down from 13.9% in 1990. Inequality is even worse in New York City. According to the FPI report, "if New York City were a nation, it would rank 15th worst among 134 countries with respect to income concentration, between Chile and Honduras. Wall Street, with its stratospheric profits and bonuses, sits within 15 miles of the Bronx," one of the nation's poorest counties. <a href="http://247wallst.com" target="_hplink">See more information at 24/7 Wall Street.</a>

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