Missed Opportunities: Assessing New York's 2000-2001 Executive Budget in Economic, Social and Fiscal Context

January 25, 2000. The Fiscal Policy Institute’s annual budget briefing:

  • State government has begun to address one of New York’s most glaring social disparities (the large and growing number of New Yorkers without health insurance), and it has begun investing in several other areas in which there are significant social investment gaps (such as child care). Unfortunately, it continues to miss the opportunity to use the surpluses generated by the boom on Wall Street and several other factors to do more in these areas, to begin addressing the state’s numerous other unmet social and infrastructure investment needs, and to put its fiscal house in order.
  • Rather than contributing to the current surpluses, the large, multi-year, backloaded tax cuts of the last six years, have been financed in large part by the revenues that the state is receiving from the boom on Wall Street. Other factors that have assisted the state in balancing its budgets in the face of these seemingly unaffordable tax cuts include -real cutbacks in current services and increases in tuition and other fees, -the shifting of a variety of costs to local governments, -the stalling of the effort to ramp back up the portion of capital spending paid for on a pay-as-you go basis rather than through borrowing, -the fiscal relief generated by the federal government’s conversion of welfare assistance to a block grant combined with substantial declines in caseloads, and -the revenues from the tobacco settlement.
  • Since 1994, New York State has been doing much better in income growth than in employment growth. While the growth in personal income, as reported by the U.S. Bureau of Economic Analysis (BEA), has not returned to the rates attained during the 1980s, every year since 1994 has witnessed growth on this measure of between 4.3% and 5.8%. Moreover, capital gains income, which is not included in the BEA measure of personal income, has shown phenomenal growth in New York State, more than quadrupling from $12 billion in 1994 to $49.3 billion in 1999, according to NYS Division of the Budget estimates.
  • This helps to explain why the State Treasury is doing well despite the fact that employment growth has averaged less than 1.4% over the last five years, well below the rate of growth during the five-year heyday of the 1980s recovery. In fact, personal income tax receipts have grown by over $5.5 billion in the last two years, helping to offset the $3.3 billion in additional annual tax cuts phased-in over this period, and the first increases in current services spending in four years.
  • This briefing will examine the relationships that exist between recent economic trends and the state’s fiscal situation, as well as the factors that are resulting in increasing disparities between those at the top of the socioeconomic ladder and both the middle class and the working poor. This will be followed by a discussion of the nature of New York’s income inequality and the steps that state government can take to improve the economic prospects of middle income and needier New Yorkers. The briefing will conclude with an examination of several key fiscal issues.

New York’s Economy at the End of the 1990s

  • New York’s recent economic recovery has been modest by historic standards.
  • The state’s growth has been concentrated in a few industries and in the downstate area.
  • Unemployment remains high in many parts of the state, including New York City’s outer boroughs.
  • New York State has benefitted from the extended bull market but it has become very dependent on Wall Street.
  • The benefits of the recent recovery have not been shared by all segments of the workforce.
  • New York has lost middle income jobs and gained jobs in sectors that pay less well.
  • A decline in the level of unionization and the erosion of the purchasing power of the minimum wage help to explain the declines experienced by many New York workers.

The 2000-2001 Executive Budget misses the opportunity to address the economic and social disparities that continue to plague New York State.

  • The most important challenge facing New York State is the increasing divergence that exists between the relatively small number of New Yorkers who are benefitting from the current economic recovery and the rest of the state’s residents.
  • Unlike Governor Pataki’s previous budget proposals, the 2000-01 Executive Budget does not propose to make it harder for New Yorkers to move up the socioeconomic ladder by proposing actual cute in Medicaid or the Tuition Assistance Program (TA). It does, however, make college less accessible for many families by failing to update the income parameters for determining TAP awards and by cutting funding for the state’s highly successful higher education opportunity programs (EOP, HEOP, SEEK and College Discovery). On the bright side, last month’s agreement to establish Family Health Plus bodes well for addressing one of the state’s most significant problems — the increasing number of New Yorkers who are without health insurance, both absolutely and relative to the nation as a whole.
  • The budget does little however, to reduce the increasing number of New Yorkers who are living in poverty or to reduce the disparities that exist within the state in terms of the educational resources available to New York children or to address the state’s substantial social investment gap. Leveling up school spending through a substantial increase and a fundamental restructuring of the school aid system will prepare New York for the future and provide more effective tax relief for all property owners than the STAR program could ever do.

A major new national study places New York’s increasing income inequality in comparative and historic perspective.

  • Pulling Apart: A State-by-State Analysis of Income Trends is a new analysis by the Center on Budget and Policy Priorities and the Economic Policy Institute – two Washington, DC-based research organizations. The report uses the latest Census Bureau data to measure pre-tax changes in real incomes among high-, middle- and low-income families in each of the fifty states at similar points in the business cycle — from the late 1970s to the late 1980s and from then until recently.
  • The report is based on an original analysis of before-tax income for families recorded by the Census Bureau’s March Current Population Survey. The analysis compares “pooled” data from the three most recent years available — 1996, 1997, and 1998 — to similarly pooled data from the late 1970s and late 1980s. Using pooled data rather than data collected within a single year enlarges the sample size, thus increasing precision.
  • Comparisons between the three time periods chosen are appropriate because they are similar points in the business cycle. (The late 1970s and late 1980s were the peaks of the previous two economic expansions and the late 1990s are the highest point of the current expansion for which state data are available.)

Income inequality continued to grow in most states in the 1990s, despite economic growth and tight labor markets.

  • In two-thirds of the states, the gap in incomes between the top 20 percent of families and the bottom 20 percent of families grew between the late 1980s and the late 1990s. In three-fourths of the states, income gaps between the top fifth and middle fifth of families grew over the last decade. By contrast, inequality declined in only three states.
  • Over the 1990s, the average real income of high-income families grew by 15 percent, while average income remained the same for the lowest-income families and grew by less than two percent for middle-income families.
  • Over the longer term — from the late 1970s to the late 1990s — income disparities between the high- and low-income families increased in all but four states. In 45 states, the gap between the average incomes of middle-income families and of the richest 20 percent of families expanded between the late 1970s and the late 1990s.

The results are dramatic and demand action. They cannot be explained away. Rather than trying to understand and address the causes and consequences of these trends, some critics are claiming that the results do not show a problem. Others are trying to explain away the results.

  • Explanation #1. Americans constantly move up and down the income scale so a gap between the top and the bottom is not a problem. The Reality: The ability of Americans to move up the income ladder has not increased as inequality has increased. Income inequality in the United States is greater than in other countries but mobility is no greater. Low-income families and individuals with less education have the lowest income mobility. Some 60 percent of families in the bottom fifth remain there 5 years later.
  • Explanation #2: It is not a problem that the rich are getting richer faster because everyone is doing better; all have shared in the growth in income and wealth. The poor are not really badly off. The Reality: In New York, as in many other states, the rich have gotten richer while the incomes of poor and middle class families have declined. The distribution of wealth in the United States is more unequal than the distribution of income. For example, a recent study found that, in 1995, the wealthiest 10 percent of the U.S. population held 88 percent to 92 percent of stocks and mutual funds, financial securities, trusts and business equity, while the remaining 90 percent of the population held less than 12 percent. Poor families face serious problems paying for housing and utilities, putting food on the table and obtaining health insurance. A recent Urban Institute survey found that half of the low-income families surveyed reported food-related problems; close to one-third reported difficulties paying their rent, mortgage or utility bills and some 37 percent of the low-income adults surveyed lacked health insurance.
  • Explanation #3. These results are before taxes and ignore non-cash benefits that low-income families receive. The Reality: All cash transfer payments are included in the Census data. In New York, as in other states, the exclusion of non-cash transfer payments (primarily, food stamps and housing subsidies) for low-income families is outweighed by the fact that the Census data also excludes Capital Gains ($36 billion for New York resident taxpayers in 1997, with 75% of that amount going to the 1.7% of taxpayers with incomes over $200,000 per year). The Congressional Budget Office analysis of income after federal taxes (including the refundable portion of the Earned Income Tax Credit) found the same pattern of growing inequality that is revealed by the Census data. While the inclusion of federal income taxes narrows the income gap, the inclusion of payroll taxes widens it. State and local taxes are not included in the Congressional Budget Office study but because virtually all state tax systems collect a larger share of the incomes of poor and middle-income families than of high-income families, their inclusion would serve to widen the after-tax income gap.
  • Explanation # 4. The widening of the income gap is the result of demographic changes such as smaller family sizes and is the natural result of differences in education, skills and work effort. The Reality: This analysis includes only families; thus it is not skewed by the inclusion of teenagers and other young single workers. The income gap is even greater among families with children than among all families. The Congressional Budget Office study of income inequality which adjusts for family size also shows a widening income gap. The income gap has also grown for families with similar amounts of education and within age groups.

There is much that state governments can do to push back against this trend. States can:

  • Restore the purchasing power of the minimum wage
  • Strengthen their unemployment insurance systems
  • Strengthen Social Safety Nets and provide key supports for low-wage workers
  • Stop the movement toward greater regressivity in state tax systems

Strengthen state unemployment insurance systems.

Unemployment insurance has become less effective at maintaining income than in the past because a smaller share of unemployed workers now receive unemployment insurance. In New York, in 1997, only 34% of unemployed workers received unemployment insurance. If the recipiency rate in 1996 had been as high as it was in 1970, roughly 125,000 more people would have received unemployment insurance. There are a number of options for modifying state rules that govern unemployment insurance that would expand coverage among low-wage workers.

States can:

  • Establish a “Moveable Base Period” for eligibility so that a person’s most recent earnings are considered in the determination of unemployment insurance benefits. (New York currently provides for a moveable base period.)
  • Revise eligibility rules to require a minimum number of hours to qualify for unemployment benefits rather than a minimum amount of earnings.
  • Broaden the definition of good cause for leaving work. (New York’s definition is broader than that of most states but could be improved by specifically listing additional reasons that can be considered good cause for leaving work.)
  • Include workers who are only available for part-time work as eligible for unemployment benefits. (New York currently allows this only if the unemployed worker was previously working part-time.)
  • Establish a dependent allowance that acknowledges the special needs of working parents by providing additional unemployment insurance payments to workers with children.

New York can strengthen its Social Safety Net and provide supports for low-wage workers to assist them in moving up the income ladder.

  • Liberalize the earned income disregard
  • Make affordable transportation options readily available
  • Establish transitional employment programs
  • Increase welfare grant levels
  • Faithfully implement the new Family Health Plus program and increase outreach for the Child Health Plus program
  • Improve the availability of affordable child care

Despite its high poverty rates and great wage and income inequality, New York maintains a regressive state-local tax system.

  • A progressive tax system is one in which the portion of a household’s income that goes to taxes increases as its income increases.
  • A regressive tax system is one in which that portion decreases as one’s income increases. In other words, a regressive tax system is one in which wealthy households pay a smaller share of their income in taxes than do lower income households.
  • A proportional tax system is one in which all households, regardless of their income levels, pay about the same portion of their incomes in taxes.
  • While it is interesting to note if an individual tax is regressive, proportional, or progressive, the more important question is whether the tax system as a whole is regressive, proportional, or progressive. For most states, the question is not whether or not the progressivity of its personal and corporate income taxes and its estate tax balance out the regressivity of its consumption, excise and property taxes.

New York needs better information on the impact of state tax changes.

  • In New York, as in most states, tax reductions and tax increases have been adopted without information or debate over the extent to which various income groups would benefit or be harmed by the proposed tax changes.
  • In order for state policymakers to fashion tax reforms which reduce after-tax inequality, they must have access to consistent, timely information about the distributional impact of their existing taxes. In addition, tax incidence information should be available during legislative debates over changes to the tax system. Periodic reports on the tax system as a whole should also be prepared and disseminated.
  • Minnesota has routinely produced such information. Texas and Maine recently established requirements for regular reports on the incidence of their tax systems.

Most of the new tax cuts proposed in the 2000-2001 Executive Budget are unlikely to improve the state’s economy.

  • Unlike the other tax cuts proposed in the Executive Budget, the elimination of the gross receipts tax on energy companies makes sense from a tax policy perspective. While a 3% reduction in the cost of energy, if all of the tax savings are passed on to consumers, will be a welcome break, such a change is very unlikely to have the miraculous effect on the economy that is being attributed to it by its advocates.
  • While the elimination of the gross receipts tax on energy companies makes sense from a tax policy perspective, it should be done in lieu of tax cuts of equal value that are currently scheduled to take effect over the next several years (or some of the special corporate tax breaks that were implemented in the last several years) rather than in addition to those tax cuts, thus exacerbating the state’s structural deficit in future years.
  • Most of the other tax cuts being proposed this year are designed to encourage firms to create jobs in areas of New York State where job creation is needed. Most of these tax cuts, however, do not have accountability mechanisms to ensure that the promised job creation actually materializes and only one has any kind of even quasi-public reporting on what has actually happened. Most are also badly targeted – including some areas with vibrant economies while excluding areas, such as the Bronx and Brooklyn, with extremely high unemployment rates. More importantly, only one of these tax breaks has any job quality requirement, and that requirement is extremely inadequate – providing double-value tax breaks if an employer’s average wages paid exceed $8 per hour.

If New York State adopts tax breaks or other incentives in the name of job creation, it must establish standards that will ensure that the taxpayers of the state get their money’s worth and that they get what they pay for.

  • 46+ cities, states or counties now attach job quality standards to economic development subsidies such as tax-free loans, training grants, property tax abatements. Standards span wages, health care, full-time hours. About half require or encourage health care coverage.
  • These laws address the “hidden taxpayer costs” of subsidizing low-wage jobs. (Subsidized jobs should not have the hidden taxpayer costs of poverty-wage jobs such as Food Stamps, Medicaid, and Federal and State Earned Income Tax Credits.
  • Subsidies should not go to firms that violate environmental, worker safety, or other laws.
  • In the new information-based economy, investing in K-12 education; ESL, GED, and adult literacy programs; and, training for incumbent workers has greater pay-off than subsidies for low-wage jobs. Education must be protected from corporate welfare.
  • Subsidies don’t create markets. Retail and service businesses that serve local markets should not be subsidized except in extreme cases.
  • Piracy is indefensible in all cases. Even those who feel that New York has to compete with other states, should oppose subsidies for intrastate and intra-region relocations.
  • Favoritism to some companies is unfair to others.

The Fiscal Policy Institute wishes to thank the Ford and Charles Stewart Mott Foundations for their support of the state fiscal analysis work that makes this briefing book, and the briefings at which it is being presented, possible. It also wishes to thank the many labor, religious, human services, community and other organizations that support and disseminate the results of that analysis. Additional thanks to CSEA for printing this briefing book.

Pulling Apart in New York: Most New Yorkers Not Sharing in the Current Boom Times

January 18, 2000. New York State and New York City have always had much to brag about. There is, however, at least one major national trend in which New York’s preeminence is more of a danger sign than a blessing. This involves the widening gap that exists between the economic well-being of people at the top of the socioeconomic ladder and those below them on that ladder. New national and state reports show income inequality in New York is the worst of any state.

Below, the executive summary of the state report on income trends in New York State and New York City, and FPI’s press release. Also see complete reports, New York and state-by-state, and a fact sheet (with graphs) on income inequality in New York.

Executive Summary

New York State and New York City have always had much to brag about. There is, however, at least one major national trend in which New York’s preeminence is more of a danger sign than a blessing. This involves the widening gap that exists between the economic well-being of people at the top of the socioeconomic ladder and those below them on that ladder.

A new report from the Center on Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI), Pulling Apart: A State-by-State Analysis of Income Trends, finds that, overall, New York has the most unequal distribution of income in the United States and that the situation in the Empire State has gotten much worse over the last two decades. The major findings of the CBPP/EPI report and of this companion state-level report, Pulling Apart in New York, include the following:

  • New York has the widest income gap between rich and poor of all 50 states (14.1 to 1), and the third widest gap between the rich and the middle class (3.3 to 1).
  • Despite the recent economic recovery, these income disparities are significantly wider today then they were at similar points in the business cycle in the late 1970s and late 1980s. Over this period of time, no state has seen greater growth in the income disparity between the rich and the poor than New York.
  • The ratio of the average family income of the richest five percent of New Yorkers to the average family income of the poorest twenty percent was 25 to 1 in the late 1990s — more than double the ratio of the 1970s.
  • Income inequality in New York is growing not simply because the rich are getting richer but also because both the poor and the middle class are seeing their real incomes decline. In the 1990s, only the top fifth of New York families saw an increase in their average real incomes. The other four quintiles have all seen their average incomes decline.
  • The share of income going to the poorest fifth of families is smaller in New York than in all but one other state while only three other states have a larger share of income going to the richest fifth of families.
  • While the New York City Primary Metropolitan Statistical Area has an extremely unequal income distribution, even the rest of the state, considered on its own, has a wider income gap between rich and poor than 32 of the other states.
  • When only families with children are considered, the gap between the average incomes of New York’s richest and poorest families is even larger and has more than doubled since the late 1970s. New York’s Inequality Worst of All States

On almost all measures of income inequality, New York is the worst or one of the worst.

The average income of the top fifth of New York families is 14.1 times greater than that of the bottom fifth. This is the biggest difference of all states and is far worse than the national average ratio of 10.6 to 1.

  • Almost half (48.7%) of all family income in New York goes to the richest 20 percent of individuals in families (that is individuals in families with incomes of more than $86,525 per year in the 1996-98 period). In contrast, only 3.8% of income goes to the poorest fifth of New Yorkers (those who are in families with incomes of less than $19,693 per year). Only three other states (Arizona, New Mexico and Texas) have a larger proportion of income going to the richest families and only New Mexico has such a small share of income going to its poorest families.
  • The disparities are even greater among families with children. The average income of the top fifth of New York families with children is 17.3 times greater than the average family income for the poorest fifth of such families.

Not only is there an enormous gap between the richest and the poorest, but the gap between the incomes of New York’s rich and middle income families is one of the worst in the nation.

  • The ratio of the average family income of the top fifth of New Yorkers to the average income of the middle fifth is 3.3 to 1. This is the third worst ratio in the nation, only better than Arizona (3.7 to 1) and New Mexico (3.3 to 1).

The gap between the middle income group and the top five percent of the population is even more severe. Once again, New York leads the nation with a ratio of 5.8 to 1 — that is, the average income of families in the top five percent was 5.8 times greater than the average income of families in the middle fifth.

  • The share of income going to the middle fifth of individuals in families in New York is 15%. Only seven states have a smaller share of income going to this group of families.

The New York City Primary Metropolitan Statistical Area (New York City plus Westchester, Rockland and Putnam counties) has a much less equal distribution of income than the rest of the state.

  • The average family income of the top fifth of families in the New York City PMSA was 20 times greater than the average family income of the bottom fifth.
  • The ratio of the average family income of the top fifth of families in the New York City PMSA to the average family income of the middle fifth was 4 to 1.
  • More than half (54.4%) of family income in the New York City PMSA went to the richest fifth of families. A mere 2.7% of income went to the poorest fifth and only 13.4% went to the middle fifth.

While income in the rest of the state is more equally distributed than it is in the New York City PMSA, it is less equally distributed than in most other states.

  • The average family income of the top fifth in the rest of the state was 9.9 times greater than the average income of the bottom fifth. This ratio means that, even outside the New York City PMSA, the income distribution is more unequal than it is in 32 other states.
  • The average income of the top fifth of families outside the New York City PMSA was 2.8 times greater than the average income of the middle fifth of families in that part of the state.
  • The share of family income outside the New York City PMSA going to the top fifth was 44% while the bottom fifth received only 5.4% of the total. The middle fifth accounted for 16.2% of income.

The rich get richer while the poor and middle income families lose ground.

While New York’s income inequality has always been high, the disparities have been worsening over time and have been growing much more quickly than in most other states.

  • The richest fifth of New York families saw its average inflation-adjusted family income increase $19,680 (or 14.8%) to $152,350 from the late 1980s to the late 1990s. Meanwhile the average income of the poorest fifth of New York families declined by $1,970 (or 15.5%) to $10,770.
  • The ratio of the average family income of the richest to the poorest New Yorkers has grown steadily from 7.8 to 1 in the late 1970s to 10.4 to 1 in the late 1980s to 14.1 to 1 in the late 1990s. The absolute change between the late 1970s and the 1990s was greater in New York than in any other state and only Rhode Island experienced a greater percentage increase in this ratio. (Despite this rapid increase, the overall ratio of the average income of Rhode Island’s richest to its poorest families was 11.8 to 1, well below New York’s.)
  • While New York has had a relatively unequal income distribution for a long time, its place at the top of the list is of recent vintage. Traditionally, income inequality in the United States was thought of as a Southern phenomenon. In the late 1970s, for example, New York had the greatest income inequality of any northern industrial state, but it ranked “only” 12th among the 50 states. At that time, nine of the 11 states with more unequal income distributions were from the South. Only two of those states (Louisiana and Texas) remain in the top ten today, while others, such as South Carolina which went from 10th to 36th, have greatly improved their relative ranking in terms of top-to-bottom income inequality.
  • The growth in the average income of the top five percent of New York’s families relative to the poorest fifth was even more disturbing. While in the 1970s the top five percent enjoyed 11.8 times the income of the poorest fifth, by the late 1990s their average income was 25 times the average income of the poorest families.

Not only the poorest New Yorkers have seen their incomes fall. In fact, during the 1990s, only the top fifth of New York families saw an increase in their average incomes after adjusting for inflation. The average real income of this quintile grew by 15% from the late 1980s to the 1996-98 period. Over this same period of time, the other four quintiles all saw their average incomes decline.

  • The average income of middle income families grew slightly (3.8%) over the past 18 years but all of this growth took place in the period between the late 1970s and the late 1980s. Since the late 1980s the average income of the middle group actually fell from $50,230 to $46,760, a decline of almost seven percent.
  • The ratio of the average income of the richest fifth of New York families to the average income of the middle fifth is also worsening — from 2.4 to 1 in the late 1970s to 3.3 to 1 in the late 1990s. This 37% increase was greater than the increase in all but four states.
  • The ratio of the average income of the richest five percent of families to the average income of the middle 20% of families has also grown steadily from 3.6 to 1 in the late 1970s to 5.8 to 1 in the late 1990s . New York experienced a bigger increase in this ratio over the period than any of the other ten large states with samples large enough to calculate this ratio.

New York City metro area inequality is growing even faster.

Income inequality in the New York City Primary Metropolitan Statistical Area (New York City plus Westchester, Rockland and Putnam counties) is growing at an even more disturbing pace.

  • The richest fifth of New York City PMSA families saw their average inflation-adjusted family income increase by $23,373 (or 17.7%) to $155,485 from the late 1980s to the late 1990s. Meanwhile the poorest fifth of New York City PMSA families saw their inflation adjusted incomes decline by $1,164 (or 13%) to $7,774.
  • The ratio of the average family income of the richest quintile in the New York City PMSA to the average family income of the poorest quintile more than doubled from the late 1970s to the late 1990s, growing steadily from 9.5 to 1 in the late 1970s to 14.8 to 1 in the late 1980s to 20.0 to 1 in the late 1990s.

Middle income families in the New York City PMSA have also seen their incomes fall.

  • The middle fifth of New York City PMSA families saw their inflation-adjusted family incomes decline by $5,084 (or 11.7%) to $38,416 from the late 1980s to the late 1990s.
  • The ratio of the average income of the richest fifth of New York City PMSA families to the middle fifth has worsened — increasing from 2.7 to 1 in the late 1970s to 4.0 to 1 in the late 1990s.
  • Since the late 1980s, only the richest fifth of individuals in New York City saw an increase in average family income. The other four quintiles all experienced declines in average family income.

The rest of New York State has also experienced increasing inequality.

The increase in income inequality in New York State goes beyond the New York City PMSA. The rest of the state has also seen a dramatic increase in income inequality.

  • For the richest fifth of New York families outside the NYC PMSA, average inflation-adjusted family income increased by $16,195 (or 12.2%) to $148,454 from the late 1980s to the late 1990s while the poorest fifth saw its average income decline by $1,774 or 10.6% to $14,883.
  • The ratio of the average family income of the richest fifth of families to the poorest fifth of families, outside the New York City PMSA, grew steadily over the last two decades, from 6.4 to 1 in the late 1970s to 7.9 to 1 in the late 1980s to 9.9 to 1 in the late 1990s.

In the rest of New York State all but the richest have seen their family incomes decline since the late 1980s.

  • The average income of the middle fifth of families outside the New York City PMSA declined by $2,567 (or 4.9%) to $52,292, from the late 1980s to the late 1990s.
  • The ratio of the average income of the richest fifth of these families to the average income of the middle fifth increased from 2.2 to 1 in the late 1970s to 2.4 to 1 in the late 1980s to 2.8 to 1 in the late 1990s.
  • For the last eight years, only the richest fifth of families living outside the New York City PMSA experienced any increase in inflation-adjusted family income. On average, the inflation-adjusted family incomes of each of the other four quintiles fell.

Many factors affect inequality.

The increase in income inequality is a result of growth in both wage and income inequality.

Wage Inequality: The growth in wage inequality is generally attributed to a number of factors including increasing globalization, the decline of manufacturing jobs, the growth in low-wage service jobs, the decline of unionization, and the erosion of the real value of the minimum wage. Many of these trends are attributable to government policies. In some cases, such as trade liberalization, this has involved what government has done. In other cases, such as the erosion of the minimum wage as a floor under the low end of the wage scale, this has been the result of what government has failed to do.

  • Manufacturers, corporate headquarters, banks, defense contractors, utilities and government reduced employment in New York by nearly 400,000 in the 1990s, resulting in the loss of many middle income jobs. These jobs have been replaced by over 400,000 jobs in the service sector. The industries adding jobs in the 1990s in New York had average wages 39% below the average for the industries losing jobs. For a more complete statistical picture of this and other aspects of New York’s economy see the Fiscal Policy Institute’s September 1999 report, The State of Working New York. The Illusion of Prosperity: New York in the New Economy.
  • While New York has the second highest degree of unionization in the nation, the percent of the state’s workforce that was unionized declined from 28.1% in 1988 to 25.4% in 1998. Over this same period, the number of unionized employees declined faster in New York (down 6.5%) than in the nation as a whole (down 4.6%).
  • As a result of these sectoral shifts and the decline in unionization, the median hourly wage of New York workers fell 6.3% in the 1990s. During the same period the median hourly wage nationally declined by only 0.6%.

Investment Income Inequality: The growth in investment income is overwhelmingly related to the boom on Wall Street, particularly during the last five years. The data presented in this report, however, does not capture all, or probably even most, of the increasing inequality attributable to the distribution of investment income since the Census Bureau’s Current Population Survey does not include information on capital gains. Between 1994 and 1999, the portion of the income reported on New York State personal income tax returns that was from capital gains is estimated by the NYS Division of the Budget to have increased from 4% to 11% of total income. In dollar terms, the capital gains income of New Yorkers increased from $12 billion to $49 billion over this five year period. According to IRS data, over 75% of the $32 billion in capital gains income reported by New York resident taxpayers in 1997 was attributable to only 1.7% of those taxpayers, all with incomes over $200,000.

Policies to reduce inequality

A significant amount of increasing income inequality results from economic forces that are largely outside the control of state policymakers. However, state government policies can serve to mitigate the effects of increasing inequality and push against rather than worsen the trend towards increasing inequality. By improving the economic well-being of the working poor and assisting in the transition from welfare to work, states can provide economic opportunity for everyone struggling to make ends meet including workers on the lowest rung of the wage-ladder, recently arrived immigrants and workers who face temporary unemployment. In addition, state tax structures can be modified to reduce their tendency to accelerate rather than moderate the growth in the income gap between rich families and poor and middle income families.

The new report by the Center on Budget and Policy Priorities and the Economic Policy Institute presents a number of policy options including the enactment of higher federal and state minimum wages, strengthening the unemployment insurance system, increasing cash assistance benefits, providing enhanced work supports and reforming state tax systems. Some of those recommendations, such as those relating to the adoption of a State Earned Income Tax Credit and certain important unemployment insurance reforms, have already been adopted by New York State, but others have not and should be seriously considered by New York policymakers. For a thorough analysis of policy options for mitigating income disparities in New York, see the Fiscal Policy Institute’s March 1999 report, Working but Poor in New York: Improving the Economic Situation of a Hard-Working but Ignored Population. Among the most relevant and timely of the specific ideas presented in one or both of those reports are:

• Increasing and indexing of the minimum wage at both the federal and state levels.

• Making welfare reform work by liberalizing the earned income disregard, making affordable transportation alternatives available, establishing transitional employment programs and increasing welfare grant levels.

• Improving the unemployment insurance system as it relates to low-wage and contingent workers, particularly those with families, in terms of both qualification requirements and benefit levels.

In addition to considering such specific options, New York leaders should also consider whether the choices that they make in other policy areas, from transportation to higher education, are making it easier rather than harder for people to move up the socioeconomic ladder.

Conclusion: Growing Together Rather than Pulling Apart

By their use of the “pulling apart” metaphor in the title of their new study of income trends in the 50 states, the Center on Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI), are being both accurately descriptive and appropriately judgmental.

Arithmetically the widening income gaps that are being experienced in New York are the result of two divergent trends. The average income of the top quintile of families is pulling in one direction – up, substantially. At the same time, the average incomes of families in the other quintiles are being pulled in the opposite direction, overwhelmingly by forces outside their control. This “pulling apart” phenomenon has been particularly intense in New York State. In fact, no state in the nation has seen a greater increase in the gap between the incomes of the richest and the poorest families. While the economic growth in New York between the late 1970s and the 1980s was, on average, shared (albeit not equally) by four out of five families in New York, the most recent economic expansion has increased the average income of only the richest fifth of families. The poorest fifth of New Yorkers has seen steady declines in its average income through both periods.

The term “pulling apart” also connotes that there are dangers inherent in these cold hard facts. The CBPP/EPI report highlights those risks – which range from the broadly philosophical to the mundane and pragmatic. As that report explains, there are important negative implications for the effective functioning of our economic system when everyone who contributes to the growth of the economy does not share in the resulting prosperity. The reality of recent trends, particularly in New York, has been far from that ideal and is captured well by the following statement from the CBPP/EPI report: “It is not that the poor and middle class are simply getting a smaller share of the growth; it is that virtually all of the growth is going to the top end.”

There are also important negative implications for our political and social systems. The widening gulf between the rich and the middle class, and between the rich and the poor, reduces social cohesion, trust in societal institutions, and participation in the democratic process. And, the latter phenomenon can lead to public policies that exacerbate rather than ameliorate the causes and the consequences of income inequality.

Public and private sector leaders should commit themselves to pursuing policies and making decisions that make it easier rather than harder for New York families to move up the socioeconomic ladder. In this way, New York can begin growing together rather than pulling apart.

Acknowledgments

The primary author of this report is Trudi Renwick, an economist with the Fiscal Policy Institute and a nationally recognized expert on issues related to poverty and family incomes. Frank Mauro and James Parrott, also of the Fiscal Policy Institute staff, assisted Dr. Renwick in the analysis of the data presented in the report and in the editing of the final report. Special thanks are due to Elizabeth C. McNichol of the Center on Budget and Policy Priorities and Jared Bernstein of the Economic Policy Institute for sharing with us the data from their new state-by-state analysis of income trends. We are also grateful to Dr. Bernstein and his EPI colleague, Danielle Gao, for the CPS work that made it possible for us to compare the changes in family incomes in the New York City Metropolitan Statistical Area to the rest of the state. This project would not have been possible without the support of the Ford and Charles Stewart Mott Foundations and the many labor, religious, human services, community and other organizations that support and disseminate the Fiscal Policy Institute’s analytical work.

Methodological Notes

The data utilized in this report is for the before-tax incomes of families (two or more related individuals residing together) and comes from the U. S. Bureau of the Census’ Current Population Survey (CPS). The CPS data captures only some of the effects of the unequal distribution of investment income since it does not include income from capital gains, a rapidly increasing component of income in New York during the 1990s. All figures have been adjusted for inflation and are expressed in 1997 dollars. Due to small sample sizes for some states, the report compares “pooled” data for the three most recent years available (1996, 1997 and 1998) to pooled data for the late 1970s (1978, 1979 and 1980) and late 1980s (1988, 1989 and 1990). Comparisons among these three time periods are appropriate since they represent similar points in the business cycle. The people living in families in each state have been divided into five groups, each with 20 percent of those individuals. These various 20 percent groupings are referred to interchangeably as particular fifths or quintiles of families or of individuals living in families. Data for the top five percent of families is presented, but only for the eleven largest states in the country, since these were the only states for which the sample sizes were large enough to make statistically significant calculations for this segment of the population.

Press release

New York has the most unequal income distribution in the United States and the situation in the Empire State has gotten much worse over the last two decades. These are among the findings of a new analysis of income trends in the 50 states by two highly respected research organizations based in Washington, D.C, and a state level report by the Fiscal Policy Institute.

“The current situation can only be described as a crisis. New York has, by far, the most unequal income distribution of all 50 states, and the situation is getting worse. This report should serve as a wake-up call for state leaders,” said Trudi Renwick, an economist with the Fiscal Policy Institute.

Renwick called upon the state’s religious, labor, civic and business leaders to convene a series of summit meetings to explore and address both the causes and the consequences of this situation. “New York must develop a strategic action plan for reducing child poverty, increasing job opportunities and ensuring that the incomes of working families do not continue to deteriorate.”

The Center on Budget and Policy Priorities (CBPP) and the Economic Policy Institute (EPI), in their new report, Pulling Apart: A State-by-State Analysis of Income Trends, examine the changes that have occurred since the late 1970s in the average incomes of families in different segments of the income distribution in each state. Working with CBPP and EPI, the Fiscal Policy Institute has issued a companion report Pulling Apart in New York: An Analysis of Income Trends in New York State and New York City, which presents additional analysis of the data on New York State and includes information on the New York City metro area and the balance of the state. Among the major findings of these two new reports are:

  • New York has the widest gap between rich and poor of all 50 states. In New York, the average income of the top 20% of families (in the last three most recent years for which data is available, 1996 through 1998) was $152,349 or 14.1 times as large as the average income of the poorest 20% of families during this same period ($10,769).
  • Only one other northern industrial state is even in the top ten in terms of this ranking (Rhode Island is 6th with an 11.8 to 1 ratio between the incomes of the top and bottom quintiles), New York’s neighboring states of New Jersey (9.5 to1) and Connecticut (9.9 to 1) are ranked 24th and 19th, respectively, in the new study with much more equitable income distributions than the nation as a whole (10.6 to 1).
  • New York has the third widest income gap between the rich and the middle class, behind only Arizona and New Mexico. Again, no other northern state is even in the top ten, and New Jersey and Connecticut are ranked 31st and 22nd.
  • Since the late 1970s, no state has seen greater growth in income disparities between the rich and the poor than New York. In the late 1970s, New York had the most unequal income distribution of any northern industrial state (7.8 to1), but it was very close to the national average of 7.4 to 1, and it ranked “only” 12th among the 50 states. By the late 1980s, it ranked fourth on this measure and it now has top ranking by a comfortable margin.
  • In terms of the gap between the rich and the middle class, New York was 16th in the late 1970s with a ratio only 4% above the national average. Today, it is ranked third with a gap between the top and middle quintiles of 10%.
  • For the eleven largest states, the reports also look at the average family income of richest five percent of families. In New York in the 1996-98 period, these families had incomes that averaged $269,051 or 25 times more than the lowest quintile (whose incomes averaged $10,769 during this period) and 5.8 times greater than the average income of the middle quintile ($46,756).
  • While the New York City PMSA (New York City and Westchester, Rockland and Putnam counties) has an extremely unequal income distribution (a 20.1 to 1 ratio between the incomes of the top and bottom quintiles) and between the top and middle quintiles (4 to 1), even the rest of New York State has wider income gaps than the nation as a whole. In fact, on its own, the part of New York state outside the New York City metro area has an income disparity between the rich and poor that is more extreme than 32 of the 49 other states.
  • When only families with children are considered, the gap between average income of the richest and poorest families is even larger and has more than doubled since the late 1970s.

By their use of the “pulling apart” metaphor in the title of their new studies, the authors are being both accurately descriptive and appropriately judgmental. Arithmetically the widening income gaps that are being experienced in New York are the result of two divergent trends. The average income of the top quintile of families is pulling in one direction – up, substantially. At the same time, the average incomes of families in the other quintiles are being pulled in the opposite direction, overwhelmingly by forces outside their control.

The term “pulling apart” also connotes that there are dangers inherent in these cold hard facts. As the CBPP/EPI report explains, there are important negative implications for the effective functioning of our economic system when everyone who contributes to the growth of the economy does not share in the resulting prosperity. The reality of recent trends, particularly in New York, has been far from that ideal and is captured well by the following statement from the CBPP/EPI report: “It is not that the poor and middle class are simply getting a smaller share of the growth; it is that virtually all of the growth is going to the top end.”

“Public and private sector leaders should commit themselves to pursuing policies and making decisions that make it easier rather than harder for New York families to move up the socioeconomic ladder. In this way, New York can begin growing together rather than pulling apart,” said Frank Mauro, executive director of the Fiscal Policy Institute.

NEW YORK STATE

Inequality has increased in New York over the past two decades. This can be observed by ranking all New York families according to their income level, dividing them into five groups (or fifths) of equal size, and calculating the average income of each fifth of families. This analysis shows by the late 1990s:

  • The richest 20 percent of families had average incomes 14.1 times as large as the poorest 20 percent of families.
  • The richest 20 percent of families had average incomes 3.3 times as large as the middle 20 percent of families.

The Long-Term Trend

Since the late 1970s, income inequality has increased in New York. The long-term economic growth of the past two decades was not shared evenly among the poor, the rich, and the middle class. Instead, the top fifth of families fared substantially better than other income groups.

In the late 1970s, the richest 20 percent of families had average incomes 7.8 times as large as the poorest 20 percent of families. By the late 1990s, that ratio had grown to 14.1. This increase in inequality was the greatest in the nation. The gap between the rich and the middle class also increased. This increase was greater than in all but 4 states.

In the late 1970s, the richest 5 percent of families had average incomes 11.8 times as large as the poorest 20 percent of families. By the late 1990s that ratio had grown to 25.0.

Between the late 1970s and the late 1990s:

  • The average income of the poorest fifth of families decreased by $2,900, from $13,670 to $10,770.
  • The average income of the middle fifth of families increased by $1,730, from $45,030 to $46,760.
  • The average income of the richest fifth of families increased by $45,480, from $106,870 to $152,350.
  • The average income of the richest 5 percent of families increased by $107,880, from $161,180 to $269,050.

The Recent Trend

Over the past decade, income inequality has increased in New York.

In the late 1980s, the richest 20 percent of families had average incomes 10.4 times as large as the poorest 20 percent of families. By the late 1990s, that ratio had increased to 14.1. This increase in inequality was greater than in all but 3 states. The gap between the rich and middle class increased. This increase was greater than in all but 5 states.

In the late 1980s, the richest 5 percent of families had average incomes 16.1 times as large as the poorest 20 percent of families. By the late 1990s that ratio had grown to 25.0.

Between the late 1980s and the late 1990s:

  • The average income of the poorest fifth of families decreased by $1,970, from$12,740 to $10,770.
  • The average income of the middle fifth of families decreased by $3,470, from$50,230 to $46,760.
  • The average income of the richest fifth of families increased by $19,680, from$132,670 to $152,350.
  • The average income of the richest 5 percent of families increased by $63,580, from $205,470 to $269,050.

NEW YORK CITY PMSA

Inequality has increased in the New York City PMSA (New York City plus Westchester, Putnam and Rockland counties) over the past two decades.

  • The richest 20 percent of families had average incomes 20 times as large as the poorest 20 percent of families.
  • The richest 20 percent of families had average incomes 4 times as large as the middle 20 percent of families.

In the late 1970s the richest 20 percent of families had average incomes 9.5 times as large as the poorest 20 percent of families. By the late 1980s, that ratio had grown to 14.8 to 1 and by the late 1990s it had grown to 20 to 1. The gap between the rich and the middle class has also increased from 2.7 to 1 in the late 1970s to 3.0 to 1 in the late 1980s to 4.0 to 1 in the late 1990s.

Between the late 1970s and the late 1990s:

  • The average income of the poorest fifth of families decreased by $3,112 from $10,886 to $7,774.
  • The average income of the middle fifth of families increased by $355 from $38,060 to $38,416.
  • The average income of the top fifth of families increased by $52,081 from $103,404 to $155,485.

Between the late 1980s and the late 1990s:

  • The average income of the poorest fifth of families decreased by $1,164 from $8,938 to $7,774.
  • The average income of the middle fifth of families decreased by $5,084 from $43,499 to $38,416.
  • The average income of the top fifth of families increased by $23,373 from $132,112 to $155,485.

OUTSIDE THE NEW YORK CITY PMSA

Inequality has increased in the rest of the state as well.

  • The richest 20 percent of families had average incomes 9.9 times as large as thepoorest 20 percent of families.
  • The richest 20 percent of families had average incomes 2.8 times as large as the middle 20 percent of families.

In the late 1970s the richest 20 percent of families had average incomes 6.4 times as large as the poorest 20 percent of families. By the late 1980s, that ratio had grown to 7.9 to 1 and by the late 1990s it had grown to 9.9 to 1. The gap between the rich and the middle class has also increased from 2.2 to 1 in the late 1970s to 2.4 to 1 in the late 1980s to 2.8 to 1 in the late 1990s.

Between the late 1970s and the late 1990s:

  • The average income of the poorest fifth of families decreased by $1,993 from $16,986 to $14,993.
  • The average income of the middle fifth of families increased by $3,077 from $49,215 to $52,292.
  • The average income of the top fifth of families increased by $39,343 from $109,111 to $148,454.

Between the late 1980s and the late 1990s:

  • The average income of the poorest fifth of families decreased by $1,774 from$16,768 to $14,993.
  • The average income of the middle fifth of families decreased by $2,567 from$54,859 to $52,292.
  • The average income of the top fifth of families increased by $16,195 from $132,259 to $148,454.

Empire State Development: Performance of Job Development Programs

January 7, 2000. This audit (Report 98-S-7) by the Office of the State Comptroller concluded that the ESDC does a poor job of tracking employment at companies that receive state subsidies, and that many companies have fallen short of the promises for creating or retaining jobs on which their subsidies were based.