Interactive Map: Income Gap In Garden State Seventh Highest In U.S.

The loss of high-paying factory jobs and state tax policy have contributed to growing inequality, experts say

More than one in 10 New Jerseyans lived in poverty last year, and the state has one of the largest income gaps in the nation, according to new data released Friday.

The national Center on Budget and Policy Priorities, a Washington-based progressive think tank, put out a report that found New Jersey had the seventh highest income inequality in the country last year, as the richest 5 percent of households in the state had an average income 16 times higher than the poorest 20 percent. According to the report, titled How State Tax Policies Can Stop Increasing Inequality and Start Reducing It, the top 20 percent of the state’s households got almost half of the income, without counting capital gains, while the bottom 20 percent had only 5 percent.

At the same time, the U.S. Census Bureau released its 2015 Small Area Income and Poverty Estimates, which found 10.8 percent of the state’s population is living in poverty. That’s slightly less than the 11.1 percent estimate for 2014 but still higher than the 2010 estimate of 10.2 percent shortly after the official end of the Great Recession and significantly higher than the pre-recession estimate of 8.7 percent. Census officials estimate 946,000 New Jerseyans were living below the federal poverty level last year, 22 percent more than a decade earlier.

The slight drop in poverty from 2014 accompanied an apparent slight increase in the state’s median household income. However, the 2015 income estimate of $72,337 is within the margin of error of the 2014 estimate, meaning there was likely very little income change from year to year.

CBPP’s data for New Jersey was more striking in showing the differences in income by group. The average income, exclusive of capital gains, was more than $400,000 for the top 5 percent of New Jersey households. The poorest 20 percent had an average income of $25,600. That was just about $1,400 above the federal poverty limit for a family of four.

“Over the last 3 1/2 decades, income gains in the economy have gone largely to the richest households,” said Elizabeth McNichol, who wrote the report.

In New Jersey’s case, the report shows that income for the wealthiest 1 percent nearly tripled between 1979 and 2013, while income for the other 99 percent grew by just 20 percent.

The reasons include an unequal growth in wages fueled by the loss in high-paying manufacturing jobs and growth in lower-paying service sector jobs, as well as growth in investment income going primarily to the wealthy. McNichol said that while states had little influence over those causes, the inequality nevertheless “was made worse by state policy.”

For instance, Jon Whiten, vice president of New Jersey Policy Perspective, a CBPP partner, said that the state has reduced taxes for those at the highest income levels and for corporations, given tax breaks to companies for moving jobs from one area of the state to another, and “shredded” the safety net of programs for those with low incomes.

“The Democrats and the governor recently passed a tax plan with key components that will, without a doubt, worsen income inequality,” Whiten said of the recent deal to increase the gas tax, and eliminate the estate tax in 2018.

Within the state, the census data shows the usual differences. Hunterdon County had the lowest rate of poverty, 5 percent, and highest median household income, $102,797. The greatest proportion of the poor lived in Hudson County, nearly 18 percent of its population. Households in Cumberland County had the lowest median income, less than half of Hunterdon’s, at $50,259.

States have some power to address inequalities, and the report suggested ways to do so. These include making income tax more equal by raising the rate for those with very high incomes, eliminating costly tax breaks for corporations, broadening the sales tax base to cover more services used by the wealthy, and expanding earned income tax credits.

“Inequality is both a barrier to Americans striving to provide for themselves and their families and a drag on future economic growth,” McNichol said. “Reducing it should be a high priority for state policymakers.”

While Whiten held out little hope for positive change in the next year, he said that in 2018, with the change in the administration, “we can reset the agenda” to help boost working class families and those in poverty. Among NJPP’s goals will be to “roll back the worst” tax and policy decisions by the Christie administration.

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