JEFFERSON CITY, Mo. – The rich are becoming richer in the U.S., and the rest are mostly not. It’s a trend that emerged over the course of four decades and has become particularly pronounced in recent years.
Economists point to a variety of factors, including changing labour markets and federal policies. States also can make a difference. Here’s a look at four of the factors controlled by states that can play a role in the wealth gap.
Many states have progressive income tax rates, meaning the wealthy pay a larger percentage of their income than the poor do. Yet most states also levy the same sales tax rate for all, meaning the poor may pay a larger proportionate share of their income.
Data show that states have been shifting away from income taxes in favour of sales taxes, potentially exacerbating the wealth gap.
Since 1976, the average top individual income tax rate in states has fallen from 8.3 per cent to less than 6.5 per cent. The average state sales tax has risen from about 3.8 per cent to more than 5.6 per cent.
Although the federal government sets a minimum wage — currently $7.25 an hour — many states also have adopted their own wage levels. The minimum wage aims to narrow the wealth gap by boosting the income of those earning the least.
In 1976, just three states exceeded the federal minimum wage of $2.30 an hour. Many more states have since joined that group, but none have kept pace with inflation, which would make the $2.30 minimum wage equivalent to about $9.50 in today’s dollars.
In recent months, officials in some Democratic-led states have started more vigorously pursuing higher wages. Connecticut, Maryland, Hawaii and Vermont have approved raising the wage to $10.10 an hour over the coming years.
One of the most basic ways that governments can attempt to minimize the wealth gap is by redistributing tax revenues to low-income residents. That practice has been in decline. A 1996 federal welfare reform law required states to implement work requirements and other restrictions for people receiving payments.
Over the past two decades, the number of cash welfare recipients in states has dropped by two-thirds, and the amount of money people get is covering less of their daily living expenses.
Unemployment benefits have long been a safety net for people who lost their jobs, providing some income while they looked for new employment. But since the Great Recession, states have been paring back the benefits.
Since the 1960s, it had been standard for states to offer 26 weeks of jobless benefits. But since 2011, nine states have shortened that time frame, in some cases to potentially as few as 12 weeks. Other changes to state laws have made it harder to qualify.
Given less time to look for work, many people accept lower pay and fewer hours in new jobs, according to some analysts. That ultimately can increase the income gap between the wealthiest Americans and the rest.