Income inequality deprives states of needed revenue As the national economy begins to recover, one important factor that can help speed the recovery is holding it back. States are losing ground in collecting badly needed revenue due to the widening gulf in incomes between the very wealthy and everybody else. A recent report by Standard and Poor’s notes that while income growth accelerates for the wealthy, it is lagging for America’s working people. That slowdown means less tax revenue for states, which are also faced with the politically unpopular decision of raising taxes to make up the shortfall, or to cut spending on infrastructure maintenance, schools and Medicaid. “Rising income inequality is not just a social issue,” Gabriel Petek, the S&P credit analyst who wrote the report, told the Associated Press. “It presents a very significant set of challenges for the policymakers.” Many states, including New York, are trying to lure new business growth with the promise of tax breaks for corporations willing to build new manufacturing sites. Critics of such programs say they create unfair competition, pitting longtime local, taxpaying businesses against select businesses that have a preferred status. Another part of the problem, according to the report, is that the wealthy generally hide their money from taxes, keeping it outside of the country or otherwise sheltering investments. They also tend to consume less, based on their income, than average wage earners. So as their income increases, less of it is available for income tax or sales tax — revenue that helps fuel state economies. Also affecting the dip in revenue collection are online sales, which can allow consumers to avoid paying sales tax, and American manufacturers moving jobs to other countries, which saps federal and state revenue of income taxes. “Adjusted for inflation, government data show that median household income rose by a few thousand dollars since 1979 to $51,017 in 2012 and remains below its level before the recession began in late 2007. By contrast, the top 1 percent has thrived. Their incomes averaged $1.26 million in 2012, up from $466,302 in 1979, according IRS data,” the AP reported. “The combination of an increasingly global economy, greater productivity from technology and outsize investment returns has shifted a rising share of money to the wealthy,” the AP report noted. “Of all the dollars earned in 2012, more than 22 percent went to the top 1 percent. That share has more than doubled since 1979.” Read more at: http://www.philly.com/ philly/news/politics/20140915_Wealth_gap_ putting_the_squeeze_on_state_revenue. html#MBfQptbgpvqm4hxU.99 October 2014 The Work Force 5
Oct_14_WF
To see the actual publication please follow the link above