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State governments may be expanding wealth gap

WASHINGTON (AP) - The amount of income taxes demanded from the wealthy has been declining in many states while the poor have been asked to pay a greater percentage of their income through higher sales taxes.

That shift in tax policy has been promoted in many states as a way to boost the economy by encouraging businesses to grow. But it also could be contributing to a widening gap between the rich and poor in the U.S.

Economists point to a variety of factors for the gap, including changes in labor markets and federal policies. Yet data suggest that state governments also may play a role.

While states have been gradually changing their tax structure, a growing number have been reducing their social safety nets by paring back welfare and unemployment benefits.
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WEALTH GAP: Economic research shows that the gap between the richest U.S. residents and the rest of the population has been growing over the past four decades, particularly recently. Some economists are raising concerns that the trend could be limiting growth in consumer spending.

STATE POLICIES: Though labor markets and federal policies play a major role in someone's wealth, states also have an impact. State taxes can take more or less out of people's paychecks. State minimum wages can increase the income of those earning the least. And welfare and unemployment benefits can prop up people with less income in hard times.

RECENT TRENDS: States have increasingly been cutting their top income tax rates, which benefits the wealthy more than the poor. States have also been raising sales taxes that can disproportionately affect lower-income consumers. State minimum wages and welfare benefits have failed to keep pace with inflation. And in recent years, states have begun paring back the amount and duration of unemployment benefits.

(Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)


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