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Rich getting richer faster

New studies spotlight a growing gap between top and bottom. The divide
is widest in Arizona, narrowest in Wyoming.

By MSN Money Staff 1/30/06

Two new studies find the rich are getting richer at a faster pace.

A study released in late January, from the Center on Budget and Policy
Priorities and the Economic Policy Institute, found that the gap
between the highest- and lowest-income families is significantly wider than
it was 25 years ago.

And an analysis of income-tax data by Congressional Budget Office found
that the top 1% of households own nearly twice as much of the nation’s
corporate wealth as they did just 15 years ago.

The studies come among a growing push to increase the federal minimum
wage of $5.15 an hour for the first time in nine years. Public advocacy
groups have successfully lobbied for “living wage” reforms in 18 states
and a number of cities, raising the minimum wage in some places as high
as $12 an hour.

An employee working full-time at the federal minimum wage makes $10,712
a year. About 7% of the workforce earns a minimum wage.

“Growing income inequality harms this nation in a number of ways,”
stated Jared Bernstein, a senior economist at the Economic Policy Institute
and co-author of the income report. “When income growth is concentrated
at the top of the income scale, the people at the bottom have a much
harder time lifting themselves out of poverty and giving their children a
decent start in life.”


Market rebound favors well-off:

The five states with the largest income gap between the top and bottom
fifths of families are New York, Texas, Tennessee, Arizona and Florida.
Generally, income gaps are larger in the Southeast and Southwest and
smaller in the Midwest, Great Plains and Mountain states. (To see the
state-by-state list, ranked, see end of story.)

Income inequality declined somewhat, the report found, following the
bursting of the stock and high-tech bubbles in 2000, which were costly to
the highest-income families. But incomes at the top have rebounded,
while the negative effects of the recent recession on low and
moderate-income families have lasted longer than usual.

In 38 states where the incomes of the bottom fifth of families grew
more slowly than those at the top, incomes at the top rose by an average
of $45,800 (62%), while the incomes of the poorest grew by $3,000 (21%).

The only state in which incomes of the poor grew faster than those of
the rich was Alaska.

The study is based on Census income data that have been adjusted to
account for inflation, the impact of federal taxes and the cash value of
food stamps, subsidized school lunches and housing vouchers. Income from
capital gains is also included. The study compares combined data from
2001-2003 with data from the early 1980s and early 1990s, time periods
chosen because they stand as comparable low points of their respective
business cycles.

Possible steps to stem the disparity, the report offers, include
raising state minimum wages, strengthening supports for low-income working
families and reforming the unemployment insurance system. In addition,
states can pursue tax policies that partially offset the growing
inequality of pre-tax incomes.

Corporate wealth concentrates further:

The richest 1% of households -- those with incomes above $237,000 for
2003, the latest year analyzed -- owned 57.5% of all income from capital
gains, dividends, interest and rents in 2003, the CBO analysis found.
That was up from 53.4% the year before and 38.7% in 1991.

Long-term capital gains were taxed at 28% until 1997, and at 20% until
2003, when rates were cut to 15%. The top rate on stock dividends was
cut to 15% from 35% that year.

The poorest fifth of Americans owned 0.6% of corporate wealth in 2003,
down from 1.4 percent in 1991.

The CBO analysis excludes the stock held in retirement accounts such as
401(k)s and IRAs, which isn’t subject to taxation and was thus
unaffected by the tax cuts.

Although these tax cuts are slated to expire in 2008, Congress is
already debating whether to extend them through 2010. The Bush
administration has been calling for the cuts to be extended or made permanent.

An analysis by the Urban-Brookings Tax Policy Center found that an
extension of the tax cuts would save households with incomes under $50,000
about $11 in 2009. Those with incomes above $1 million would save about
$32,000.

The growing gap in family incomes:

Rank State Top 5% Bottom 20% Ratio

14 Alabama $172,029 $14,765 11.7
45 Alaska $180,148 $20,533 8.8
1 Arizona $223,081 $15,719 14.2
13 Arkansas $163,908 $13,888 11.8
8 California $207,363 $16,773 12.4
19 Colorado $215,109 $18,983 11.3
24 Connecticut $231,928 $21,003 11.0
41 Delaware $188,435 $20,225 9.3
7 Florida $199,892 $15,396 13.0
36 Georgia $158,382 $16,345 9.7
26 Hawaii $208,340 $19,294 10.8
43 Idaho $162,923 $17,847 9.1
20 Illinois $203,876 $18,032 11.3
30 Indiana $195,217 $18,590 10.5
48 Iowa $155,722 $18,503 8.4
17 Kansas $209,125 $18,284 11.4
5 Kentucky $193,766 $14,814 13.1
16 Louisiana $153,334 $13,347 11.5
31 Maine $164,232 $15,975 10.3
12 Maryland $253,923 $21,480 11.8
11 Massachusetts $233,108 $19,690 11.8
21 Michigan $200,814 $17,927 11.2
33 Minnesota $223,411 $22,608 9.9
25 Mississippi $145,342 $13,456 10.8
38 Missouri $176,320 $18,482 9.5
42 Montana $135,164 $14,788 9.1
49 Nebraska $160,862 $19,242 8.4
39 Nevada $180,521 $19,143 9.4
35 New Hampshire $226,178 $23,128 9.8
4 New Jersey $268,889 $20,391 13.2
18 New Mexico $157,011 $13,748 11.3
3 New York $216,061 $16,076 13.4
9 North Carolina $183,253 $14,884 12.3
44 North Dakota $147,519 $16,805 8.8
27 Ohio $195,175 $18,216 10.7
37 Oklahoma $150,011 $15,483 9.7
32 Oregon $175,976 $17,367 10.1
10 Pennsylvania $223,152 $18,548 12.0
28 Rhode Island $200,859 $18,916 10.6
29 South Carolina $157,634 $14,957 10.5
47 South Dakota $155,427 $18,353 8.5
6 Tennessee $187,026 $14,303 13.1
2 Texas $203,174 $14,724 13.8
34 Utah $192,142 $19,594 9.8
40 Vermont $176,291 $18,846 9.4
23 Virginia $200,191 $18,110 11.1
15 Washington $195,170 $16,911 11.5
22 West Virginia $147,434 $13,208 11.2
46 Wisconsin $174,919 $20,197 8.7
50 Wyoming $145,587 $18,171 8.0