NC Budget and Tax Center

Unequal income growth holds NC economy back

The Economic Analysis and Research Network (EARN) released a report today published by the Economic Policy Institute on the latest data on income inequality in the states. The data is unique in providing assessments of how the top 1 percent are faring compared to the bottom 99 percent. The findings are consistent though with what we know about the pulling apart of our nation’s income earners: the very top are capturing the largest share of income growth while everyone else is seeing their incomes stagnate or fall.

The problem with this outcome, which is driven by policy choices at both the national and state levels, is that when everyone doesn’t enjoy the benefits of a growing economy and increasing incomes despite having contributed by being more productive, the economy can’t reach its full potential.

Equitable growth is increasingly seen as superior to growth that concentrates the winnings in the hands of those at the top. That is because more equitable growth can be sustained for longer periods because it sustains consumer spending and doesn’t require reliance on debt to finance basic needs. And while improved data to quantify the relationship between inequality and growth is needed, the emerging evidence demonstrates that in the long-run a stronger economy is built on a foundation of broadly shared income growth.

As Budget & Tax Center analyst Patrick McHugh notes in our release on the data, the current recovery that began in 2009 can be called a 1 percent recovery. The majority of North Carolinians have not experienced an improvement in their incomes and thus are not enjoying the benefits of the increased productivity to which they have contributed. From 2009 to 2012 in North Carolina, the top 1 percent saw their income grow by 22.7 percent while the bottom 99 percent actually saw their incomes decline by nearly 2 percent. North Carolina joins 16 other states across the country in obtaining the dubious distinction of strong income growth for the top 1 percent and declines for everyone else in this period.

Public policy has a powerful role to play in reversing these trends in the current recovery. Policies like ensuring an adequate minimum wage, supporting the right to form a union and establishing greater equity in who pays taxes under state and local tax systems, for example, have proven to ensure that all benefit when the economy grows. In North Carolina’s pursuit of better economic outcomes and stronger growth, attention to who benefits from income growth should be front and center and the proven policy tools to ensure everyone shares in that growth the pursuit of legislators this session.

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