Federal policies failing in face of rising income inequality

News Release
January 26, 2006 Download PDF

New study finds income growth in Oregon is skewed towards the well-off

In Oregon, as in nearly four out of every five states, federal policies are failing to assure that the benefits of economic growth are broadly shared by all families, according to a study of income inequality released today by the Center on Budget and Policy Priorities and the Economic Policy Institute.

“America is strongest when economic growth benefits families at all levels of income,” said Michael Leachman, a policy analyst with the Oregon Center for Public Policy (OCPP) who reviewed the new report. “But over the last generation, income gains have gone very disproportionately to the well-off, and that’s a major failure of public policy.”

The study, Pulling Apart, examined the incomes of low-, middle- and high-income families during the early 1980s economic downturn, the early 1990s downturn, and the downturn of 2001-03. The analysis included the impact of federal taxes, the federal Earned Income Credit, and federal assistance programs for the poor such as food stamps, subsidized school lunches, and housing subsidies. It found that the income gap between the highest-income families in Oregon and both middle- and low-income families widened significantly over the last generation, overwhelming the moderating effects of the progressive federal tax system and federal public assistance programs.

The highest-income fifth of Oregon families saw average income gains of nearly $40,000 – 57 percent - between the early eighties and 2001-03, after adjusting for inflation. “If the low-income fifth had seen the same percentage growth in incomes as high-income families did over the last generation,” said Leachman, “these low-income families would have had $6,200 more than they did, on average, during the recent recession. Middle-income families would have had $13,500 more than they did.”

Leachman noted that it was the very richest Oregon households who were the greatest beneficiaries of economic growth over the last generation. An analysis by the OCPP found that the average adjusted gross income of Oregon households with incomes in the top one percent doubled between 1979 and 2003, while adjusted gross incomes in the top fifth as a whole rose by less than a third.

“A very small number of Oregon households have done wildly well over the last generation,” said Leachman. “If the benefits of growth had been more broadly shared, the state’s longer term economic health would be better protected.”

The Center on Budget and Policy Priorities and Economic Policy Institute study released today noted that inequality nationally is on the rise again since the end of the recent economic downturn. Weak job growth and tax cuts focused primarily on wealthy households have resulted in an even wider gap between the well-off and other American families as the economy has begun to recover.

Leachman said the available data on the current expansion indicates that inequality is widening in Oregon, as in the nation as a whole. “The current period of economic growth is delivering benefits primarily to the few, rather than broadly improving the lives of many.” He called on federal policy makers to begin to assure more broadly shared economic growth by retracting recent tax cuts for the wealthy and defeating proposed new tax cuts that primarily benefit the wealthy.

The study released today did not include the impact of state and local taxes on inequality. A couple of years ago, the Institute on Taxation and Economic Policy found that between 1989 and 2002, state and local taxes in Oregon declined for the richest households, while rising for the lowest income households and holding steady for middle-income households.

“State and local tax policy has exacerbated the widening of inequality,” said Leachman. He called for expanding the state Earned Income Credit and phasing out the personal exemption credit for higher-income families as two important steps that could be taken at the state level to counteract the trend.

The Oregon Center for Public Policy uses research and analysis to advance policies and practices that improve the economic and social opportunities of all Oregonians. The new study is available at www.ocpp.org.