An important new report documents rising inequality in states across the country. As we outlined in our 2012 analysis of state-by-state income inequality, states can — and should — take certain steps to help alleviate these trends.
A study of IRS data by the Economic Analysis and Research Network found that:
Governments at all levels can take steps to help alleviate these trends. Specifically, states can:
Stop exacerbating inequality through the tax code. In most states, low- and middle-income people pay a higher portion of their income in taxes than the wealthy. States certainly should avoid worsening this trend with tax cuts that benefit the richest households and do little for poor and middle-income families. For example, cutting progressive taxes like the income tax will benefit high-income families more than low-income families and will widen income gaps further.
Strengthen supports for low-income families. States play a major role in delivering social safety net assistance. State assistance with child care, job training, transportation, and health insurance helps poor families get and retain jobs and move up the income scale. In addition, states can shield the nation’s most vulnerable citizens from poverty’s long-term effects by maintaining their pieces of the safety net.
Raise, and index, the minimum wage. The purchasing power of the federal minimum wage is 22 percent lower than its late 1960s peak. Its value falls well short of the amount needed to meet a family’s needs, especially in states with a high cost of living. Federal action to raise the minimum wage is critical, but states don’t have to wait. Any state can help raise wages for workers at the bottom by enacting a state minimum wage that is higher than the federal wage and indexing it to ensure continued growth.