Reduce Inequality to Expand Opportunity

December 18, 2006By Michael Leachman

Over the past generation, Oregonians have become a lot more efficient. Since 1979, the amount of economic production per person in Oregon is up 33 percent, after adjusting for inflation. Partly as a result, Oregonians as a group are producing substantially more income than they used to. Last year, Oregonians made $93 billion more in income than they did in 1979.

This economic growth has not been shared by enough Oregonians, however. The hourly wage of the typical worker in Oregon has declined since 1979 from $14.58 to $14.17, after adjusting for inflation. The share of Oregon families with children who are poor even though their parents work full-time year-round has more than doubled since 1979.

So who is benefiting financially from Oregonians’ increased productivity?

Unlike middle- and low-income households, the highest-income fifth of households have done pretty well over the past generation. Their incomes rose by about a third.

Looking further at who’s benefited, you see that those at the very top reaped an extraordinary windfall. The top one percent of Oregon households saw their adjusted gross incomes double on average, and the top one-tenth of one percent – the richest 1,460 Oregon households – saw their incomes nearly quadruple, even after adjusting for inflation.

If the level of income inequality in Oregon was the same today as in 1979, low-income households would have about $2,000 more per year to help cover their basic needs, and middle-income families would have about $6,000 more per year.

That’s real money. It’s enough to make the difference between economic advancement and failure for thousands of Oregon families. Less income means fewer opportunities. Crucial investments that families must make to get ahead – investments in quality child care, a college education, or a home purchase – have become less affordable for ordinary Oregonians in recent years. Widening inequality has made it more difficult for Oregonians to make these investments than would otherwise be the case.

When wealth becomes too concentrated, political power can become too concentrated, as well. The interests of a wealthy few can effectively overshadow the interests of the many. It should come as no surprise, then, that state and local taxes in Oregon have fallen for rich households, as a share of their income, and risen for low-income households. Those who have reaped the most gains from the economy have excessive political power, and the tax system’s inequality reflects that sad reality.

Oregon needs a new direction. We need policies that broadly distribute the fruits our economy. We should, for example, reward work by increasing the state Earned Income Tax Credit to eliminate income taxes on working families with children living under the poverty line.

We should scale back tax breaks that exacerbate the inequality by giving the well-to-do even more economic advantage, such as the break that allows millionaires over age 61 to write off every dime of their out-of-pocket medical and dental costs not picked up by Medicare. The money Oregon saves could be invested in providing health care coverage for low- and middle-income working Oregonians and their children.

We should also avoid adding additional tax breaks that exacerbate income inequality. For example, we should reject proposals to reduce the income tax on capital gains to a level below the level paid by working Oregonians on their wages.

Oregon’s extraordinary increase in inequality has hurt our state. It’s time for Oregon to take steps to ensure that the benefits of economic growth are more wisely and fairly shared.