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New Jersey’s Inequality Problem

January 9, 2017 at 12:45 PM

Former New Jersey treasury officials recently took issue with my report on state tax policies and income inequality, which found New Jersey among the states with the greatest inequality. They suggested that New Jersey’s tax policy isn’t to blame for the state’s income concentration at the top, and that its inequality is on par with other states’.

First, although the growth in inequality in New Jersey and in every state reflects a host of long-standing national and global economic trends that are largely outside state policymakers’ control, as I note in the report, state policy choices can make matters worse or improve them.

New Jersey’s tax system, while easier on low- and moderate-income families than some other states,’ still puts considerably less responsibility to pay taxes on the wealthiest taxpayers than on lower-income ones. And the state just made things worse with a package of tax cuts (including repealing its estate tax) that will shift even more responsibility from high-income families to low- and moderate-income ones while reducing the funds available for education, health care, and other building blocks of shared prosperity.

The authors also object to our ranking of the states, which I explain in the report’s appendix. Our rankings are consistent with analyses by other organizations including the Economic Policy Institute and the Census Bureau.

Even if New Jersey’s inequality were just average, there’s still much room for concern when the incomes of the wealthiest 5 percent are more than 14 times those of the poorest families. (Inequality is actually worse than this as the Census data don’t include income from capital gains, which goes mainly to the wealthiest families. Inequality is also understated because data restrictions prevent us from showing the impact of state taxes in our analysis.)

States ignore growing income inequality at their peril. The fact that the lion’s share of income gains has gone to the wealthiest residents contradicts the basic belief that the people who contribute to the nation’s economic growth should reap their share of its benefits. It also harms the health of those falling behind and diminishes educational opportunities for children growing up in less affluent areas. In short, such inequality is both a barrier to Americans striving to provide for themselves and their families and a drag on future economic growth. Reducing it — or at the very least not making it worse — should be a high priority for state policymakers.