Income Inequality and the State of the States: 1980-2013

Jonathan Fisher Jeffrey Thompson Timothy Smeeding

February 2, 2015

Stanford State of the Union Conference on Poverty and Inequality

Do states matter? 1)   Does the level and trend in income inequality

vary across states?

2) Does the equalizing effect of taxes and transfers vary across states?

Two measures of income 1)   Before-tax income from the IRS –  Wages and salaries –  Dividends, rents, interest, and royalties –  Entrepreneurial income (e.g. self-employment)

2)   Standard-of-living measure of income using the Current Population Survey (CPS) –  Wage income and self-employment income –  Cash and in-kind transfer income (e.g., welfare, food

stamps, school lunches) –  Income taxes and income tax credits –  Subtract some expenses: child care, work, and medical out-

of-pocket (MOOP) expenses. –  Geographic cost-of-living adjustment

.25

.3.3

5.4

.45

.5.5

5.6

Shar

e of

Inco

me

of T

op 1

0%

1980 1985 1990 1995 2000 2005 2010

Share of Income of Top 10% by State and Year

.35

.4.4

5.5

.55

Gin

i Coe

ffici

ent

2005 2006 2007 2008 2009 2010 2011 2012

Standard−of−Living Income Gini by State and Year

UtahNebraskaDelaware

IdahoKansas

VermontIowa

IndianaNew Hampshire

WisconsinMaine

MinnesotaMontana

South CarolinaKentuckyWyoming

OhioArkansas

HawaiiSouth Dakota

MichiganPennsylvania

North CarolinaAlaska

OregonTennessee

VirginiaConnecticut

West VirginiaMarylandColoradoAlabama

MississippiGeorgiaMissouri

North DakotaMassachusetts

New JerseyRhode Island

IllinoisOklahoma

WashingtonNevada

LouisianaFloridaTexas

New YorkArizona

CaliforniaNew Mexico

DC

.35 .4 .45 .5 .55

Standard−of−Living Gini

Share of Top 10%

.3.3

5.4

.45

.5.5

5Sh

are

or G

ini C

oeffi

cien

t

1980 1984 1988 1992 1996 2000 2004 2008 2012

Share of Top 10% Standard−of−Living Gini

California Inequality by Year

How could state policy make a dent in income inequality?

•  Immediate impacts –  Increase minimum wage. –  Implement or expand state Earned Income Tax

Credit (EITC).

How could state policy make a dent in income inequality?

•  States and localities are incubators for new policies that can have a long run impact on inequality. – Education and training • Universal pre-K • Free community college • Baccalaureate degrees from community

colleges – Paid family leave