Wisconsin’s Rising Wealth Gap
In the last decade all $4.8 billion in income gains went to the wealthiest 20 percent. All boats aren’t rising.
In the world according to Scott Walker, the solution for Wisconsin’s people is simple: we need more jobs. It’s the standard prescription of many conservatives and even some liberals. As we improve the economy and increase jobs, a rising tide will lift all boats. Everybody will be a winner.
But there is increasing evidence that America’s post-1970s economic system is only allowing some boats to rise, and the problem can be seen in every state, from California to Mississippi to Wisconsin.
A recent and alarming report by the Center on Budget and Policy Priorities finds that income inequality is rising in every state. “Across all states, the average income of the richest fifth of households was eight times that of the poorest fifth as of the late 2000s,” the study noted
“Prolonged growth in income inequality undermines the basic American belief that hard work should pay off,” says Elizabeth McNichol, co-author of the report. “Anyone who contributes to the nation’s economic growth should reap the benefits of that growth. But for decades now, those benefits have been skewed in favor of the wealthiest members of society.”
The study looked shorter term, from the mid-1990s to today, and longer-term, going back to the late 1970s, and found that inequality has steadily worsened. No state saw a greater rise in inequality than Connecticut since the late 1970s: income there grew 110 percent for the richest 20 percent of people while falling 4 percent for the poorest 20 percent.
Wisconsin’s inequality grew at about half this rate, the study found. Indeed, Wisconsin ranked better than 44 states — with the sixth lowest level of income inequality. Still, it is stunning to see how drastically things are changing here. An analysis of state Department of Revenue data by the Center on Wisconsin Strategy found that between 1996 and 2010, the bottom 40 percent of income earners in the state saw their income drop by $2,407 while the richest 1 percent saw their income rise by $168, 773.
Between 2000 and 2010, the incomes of the top 20 percent of Wisconsinites rose by a total of $4.8 billion while the incomes of the bottom 80 percent of Wisconsinites dropped by $4.8 billion. All of the gains of that decade went to the wealthy, an analysis of Department of Revenue data by the Wisconsin Council on Children and Families found.
It’s not that people are unwilling to work. Even people at the very bottom are. A recent report by the UW-Milwaukee Employment & Training Institute was instructive in that regard. ETI looked at single parent-headed households in nine central city zipcodes with some of the highest poverty in Milwaukee and found that work ethic thrived in the face of the Great Recession. From 2007 to 2011 the “number of of inner city single parents filing state tax returns… declined by only 5% during the economic recession with many parents remaining in the workforce in spite of low wages and often intermittent employment.”
These are people saddled with some of the lousiest-paying jobs heavily concentrated “in child care centers, hospitals, department and discount stores, restaurant and food service establishments, and nursing homes. Many of the jobs in these sectors have variable or irregular hours and seasonal swings in employment,” the study noted. Yet the workers continued to toil away.
Meanwhile, the percent of families with “middle class” income (i.e., above 185% of poverty) in these zip codes dropped from 19% in 2007 to 15% in 2011, the study found.
One bipartisan solution to the problem of the working poor, created under Gov. Tommy Thompson was the creation of the state earned income tax credit, which gives a tax credit to those whose wages are not enough to lift the family out of poverty. But Walker and the Republicans slashed this credit in the first biennial budget they passed. The result has been “a dramatic and devastating impact on some of the lowest wage, single working parents,” as ETI director John Pawasarat noted. The average single parent family saw its tax credit drop by 23 percent, the study found.
Given the American economy’s inability to deliver gains for most workers, liberal groups like the Center on Wisconsin Strategy are calling for mechanisms to modulate the impact of a winners-take-all-the-gains economy: liberal use of the earned income tax credit. More progressive taxation. (The wealthy in Wisconsin actually pay a lower percent of their income in state/local taxes than any other groups). Increase the value of the Homestead Tax Credit, which hasn’t been increased since 1991 and has dropped greatly in value. Better legal protection of efforts to unionize. Raise the minimum wage and index it to inflation. Protect and fully fund Badger Care health care and the Wisconsin Shares child care subsidy program. And build the skills and education of Wisconsin’s workforce.
Those are are all mechanisms that deserve discussion. But perhaps the biggest problem in the American economy is the obscene increase in pay for corporate executives and other top dogs in the executive suite, while average company workers see little or no increase in wages. There has been talk of federal reforms to address this issue, but little has been done to date.