Op-Ed: Time is Ripe for a Millionaires Tax in NJ, Where Income Inequality Grows

Allan Lichtenstein | November 27, 2019 | Opinion
The additional revenue could be invested to improve the lives of people of low income
Allan Lichtenstein

In 2018, income inequality in New Jersey intensified. The rich, high-earning households grew richer, benefiting from larger gains in income than the poorer households with low incomes.

My analysis of the recent U.S. Census Bureau American Community Survey release of income inequality data reveals a process of widening income inequality in New Jersey in recent years. It stresses five aspects of exacerbating income inequality, certainly a disturbing direction for New Jersey’s future socioeconomic development, suggesting remediation is urgently warranted.

First, although the average income for each household group surpassed their 2017 levels in 2018, households in the high-income brackets enjoyed substantially larger income gains than households at the bottom end of the income scale. Moreover, the percentage increases in average household income were larger at the top end than at the bottom end of the income scale.

The average income of the top 5% of households jumped by far the most — more than $22,000 in 2018 inflation-adjusted dollars to climb to more than half a million dollars (using a New Jersey-specific inflation index that combines the CPI-All Urban Consumers Current Series for New York-Newark-Jersey City, NY-NJ-PA and for Philadelphia-Camden-Wilmington, PA-NJ-DE-Md). The top 20% of households too benefited significantly, with an almost $10,000 gain, growing from about $290,000 to almost $300,000. By contrast, the average income of the bottom 20% of households rose only by about $300 between 2017 and 2018.

Second, one method to ascertain the magnitude of income inequality is to compute the difference between the average income of the top 20% of households and the average income of the bottom 20% of households over time. A comparison of each year between 2007 and 2018, shows the divergence widening each year after 2014, reaching a maximum disparity of almost $280,000 between the two ends of the income scale in 2018.

After the Great Recession

Third, although the Great Recession concluded nine years prior, households in the bottom two quintiles have yet to enjoy the benefits of the ongoing economic expansion. They, in fact, were worse off in 2018 than in 2007. While households in the top income groups have not only recouped the income losses they suffered as a result of the Great Recession, they have raised their income levels. By contrast, the average income of households in the bottom two quintiles has contracted. The average income of these households lingers below their 2007 level.

Fourth, by far most of the household income is held by the high-income earners. In 2018, more than half of all household income accrued to the top 20% of households, while the top 5% of households amassed almost one quarter of aggregate income. By contrast, just 3% of aggregate income accrued to the bottom 20% of households.

Finally, overall, New Jersey is among the most unequal states in the country. It placed 40th among all states when comparing income inequality rankings using the Gini Coefficient, a common measure of income dispersion. Only 10 states had a larger Gini Coefficient than New Jersey, with Puerto Rico topping the list, followed by the District of Columbia, New York, Connecticut and Louisiana. The Gini Coefficient ranges from a low of zero when there is perfect equality with all households having the same income to a value of 1, which is maximum inequality when all the income is held by a single household.

The intensifying income inequality in New Jersey underscores a tendency toward increasing concentration of income among the higher income groups. It reiterates and re-emphasizes the need to impose higher tax rates on high-earning households to stem the growing income inequality and to gain a more fair and equitable distribution of income. As Emmanuel Saez and Gabriel Zucman, economists at the University of California, Berkeley and among the foremost researchers in income inequality recently demonstrated in a New York Times Op-Ed, “the working class is now paying higher tax rates than the richest people in America.”

Given these deteriorating trends in income inequality, the time is ripe for the New Jersey state Legislature to assert itself and not allow another year to pass in which it does not impose a millionaires tax on New Jersey’s wealthy residents. These additional monies could be well invested to improve the lives of people of low income, providing resources to the programs they urgently need to help them make ends meet.