State's rich/poor gap 2nd-widest in U.S.

from Everything Alabama

By JEFF AMY

Alabama's gap between its richest and poorest families is the nation's second-widest, and has grown in the last decade by the second-highest amount, driven in part by income declines among the poor.

The figures come from a report set for release today by the Center on Budget and Policy Priorities and the Economic Policy Institute, two liberal-leaning Washington, D.C. institutes. It used Census Bureau data to reach conclusions.

In Alabama, advocates for the poor said the figures should spur the Legislature to relieve state tax burdens on low-income people and provide them help seeking more education.

Those who see a society divided between rich and poor as harmful warn that a widened breach has social and economic consequences. They say poor people should share in the nation's overall economic gains, and that if they don't, it could lead to higher crime, more cynicism about politics, lower support for public schools as rich people bail out, and more housing market trouble.

"It's fundamentally unfair when all those who contribute to economic growth do not receive a share of those gains," said Elizabeth McNichol, a senior fellow at CBPP.

Other experts see less of a problem, saying that high incomes reward people with high skills, and that subsidizing poor people could lessen their urgency to seek more education.

"It would be a disaster if the

focus were on the earnings inequality itself," Nobel Prize-winning economist Gary Becker wrote in 2006. "For that would lead to attempts to raise taxes and other penalties on higher earnings due to greater skills, which could greatly reduce the productivity of the world's leading economy."

The poorest one-fifth of Alabama families averaged a yearly income of $13,280 after federal taxes in the years 2004 through 2006, the lowest in the nation during that time. The national average was $18,116.

After adjusting for inflation, average incomes for the poorest fraction fell 21 percent from 1998-2000, when they averaged $16,070 in 2005 dollars.

The richest one-fifth of state families averaged earnings of $112,804 after federal taxes in 2004-2006, making 8.5 times the average of people in the bottom fraction.

Like Alabama, some other states characterized by high income inequality were in the South and Southwest, where the poorest were very poor.

The poor were comparatively better off in other states with high inequality, but the top slice of families in those states earned far more than the national average. Among those states is New York, where top earners averaged $148,192 in 2004 through 2006. That was 8.7 times the amount earned by the bottom fifth, the largest gap in the country. Top earners in those kinds of states often reap windfalls from jobs on Wall Street and other parts of the financial sector, McNichol said.

Alabama's gap between the top and bottom fifths widened the second-largest amount among states since 1998-2000, the report found. In 1998-2000, the top group in Alabama made 6.4 times the bottom group, just under the U.S. average of 6.5.

Kimble Forrister, state coordinator for Alabama Arise, a group that lobbies to alleviate poverty, said he hoped the report would give new impetus to two measures pushed by Arise in the current legislative session. One would remove the 4-cent state sales tax on groceries and grant some other tax breaks, paying for it by removing the deduction for federal income taxes from the state Constitution. Arise believes the measure would make taxes fall less heavily on the poor in Alabama, which studies have found to have a tax system that takes larger shares of income from the poor than the rich. The change requires a constitutional amendment, with 60 percent approval from both the House and Senate needed, followed by a majority vote statewide.

Also highlighted by Forrister was a House bill that would create individual development accounts, matching $2,000 saved by people under a certain income level with $2,000 in state and federal money. The account could be spent on training.

The national groups who wrote the report also called for other measures, including a higher minimum wage indexed to inflation, broader coverage by unemployment insurance, more educational and child care aid for poor people seeking jobs, broader eligibility for food stamps in some states, and cash assistance to the working poor.