State governments may be expanding wealth gap

Policies such as cutting income taxes, curbing aid to the long-term jobless or holding down the minimum wage could ease the financial burden for the most affluent residents in many U.S. states while reducing the safety net for those at the bottom.
By DAVID A. LIEB, Associated Press Published: June 5, 2014
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Lawmakers in many states have been trying to boost their post-recession economies by cutting income taxes, curbing aid to the long-term jobless or holding down the minimum wage. Some have pursued all of these steps.

Whether such policies will spur businesses to expand as hoped isn’t yet clear. But collectively, the actions could ease the financial burden for the states’ most affluent residents while reducing the safety net for those at the bottom.

The shift may also contribute to a trend that is prompting growing national concern: the widening gap between the richest Americans and everyone else. The divergence has developed over four decades and accelerated in recent years.

Economic statistics show that incomes for the top 1 percent of U.S. households soared 31 percent from 2009 through 2012, after adjusting for inflation, yet inched up an average of 0.4 percent for those making less.

Many economists are sounding alarms that the income gap, greater now than at any time since the Depression, is hurting the economy by limiting growth in consumer spending.

Yet those concerns aren’t resonating in some states.

Last year, at least 10 states passed income tax cuts targeted at businesses or those in the top individual brackets. Several more already have cut taxes this year, including Democratic-led New York and Republican-led Oklahoma.

Yet over the past three years, nearly one-fifth of the states have pared back unemployment benefits, and more cutbacks are under consideration.

The theory is that business owners are more likely to hire, expand and drive economic growth when their own financial burdens are eased. But others contend that formula comes with side effects.

“What’s happening at the state level is increasingly important, and, to many eyes, it appears to be moving things in one direction — towards greater inequality,” said Matthew Gardner, executive director of the Institute on Taxation and Economic Policy, a Washington-based tax research group.

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