November 29, 2012 Edition

Pulling Apart: Income Gap Widens Between Michigan’s Wealthy, Poor Families

Falling incomes for Michigan’s poorest households have increased the already-wide income gap with the richest households, according to a new study by the Center on Budget and Policy Priorities and the Economic Policy Institute, two nonpartisan, nonprofit agencies that have studied the issue.

“State tax policy must address the growing wage gap in Michigan because it is harmful for all in our state,” said Karen Holcomb-Merrill, policy director of the Michigan League for Public Policy. “As Governor Snyder prepares next year’s budget, he must offer ideas that make our tax system less regressive instead of growing the economic divide. Tax cuts that benefit Michigan’s richest households without helping poor and middle-income are the wrong way to go.”

From the late 1990s to the mid- 2000s, household incomes fell or stagnated across the board. The bottom fifth of households lost more than 10% of income (a drop from $23,700 to $21,300), while the top fifth lost just over 3% (a drop from $164,900 to 159,600).

The report, “Pulling Apart: A State-by-State Analysis of Income Trends,” also finds that low-and moderate-income Michigan residents generally fared worse than higher-income households since the late 1970s. It shows:

• While incomes for the richest fifth of households grew nearly 50% from the late 1970s to the mid-2000s, incomes for the poorest fifth dropped almost 4%.

• The incomes of the top fifth of households in the mid-2000s earned 7.5 times the average income of the bottom fifth. In the 1970s, the top fifth made less than five times as much as the poorest fifth.

• The top 5% of wage earners in Michigan had income more than 12 times larger than the bottom fifth in the mid-2000s. In the 1970s, the top 5% made only six times more than the poorest fifth.

Nationwide, incomes fell by close to 6% among the bottom fifth of households, on average, while rising by 8.6% among the top fifth from the late 1990s to the mid- 2000s.

In Michigan, the shift from good-paying manufacturing jobs to service jobs is a key reason for the widening income disparity. The gap is rising across the nation because of long periods of unemployment, more intense competition from foreign firms, and a minimum wage that has not kept up with price increases.

Many reasons for growing income inequality are out of the control of states, but Michigan policymakers can take steps to address the disparity. In 2011, Governor Snyder and lawmakers enacted policies that could worsen the gap. Those decisions should be reversed immediately, according to the report, and policymakers should start doing more to address the gap between the rich and poor, including:

• Restore the traditional period of unemployment from 20 weeks to 26 weeks.

• Return the Michigan Earned Income Tax Credit for working families from 6% of the federal credit to 20%, which will help reduce the regressive nature of the state tax system.

•Index the state’s minimum wage law (last raised in 2008) to inflation so that it keeps pace with rising costs.

“In years past, Michigan has been a shining example of an economy that works because of a strong middle class,’’ Ms. Holcomb-Merrill said. “We need to make sure our budget and tax system works to strengthen our low- and middle-income families rather than making life more difficult for them.”

The report’s authors agreed.

“As state policymakers plan their budgets for next year, they should pursue policies that push back against the trend of rising inequality,” said Elizabeth McNichol, a fellow at the Center on Budget and Policy Priorities and a co-author of the report. “States that narrow – rather than widen – income gaps will reap economic benefits in the long run.”

The joint CBPP/EPI report, as well as a press release and state fact sheets, are available here: http://www.cbpp.org/cms/index.cf m?fa=view&id=3861

The Michigan League for Public Policy, formerly the Michigan League for Human Services, is a nonpartisan, nonprofit organization promoting economic security through research and advocacy.

The Center on Budget and Policy Priorities is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.

2012-11-29 / News

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