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Despite a period of sustained economic growth - or so they said - income inequality in this state is still rising.
Even though middle-income families saw their average income increase over the decade of the 90s, New Jersey was still one of 10 states where the gains were not enough to prevent a widening of the gap between the wealthiest one-fifth of families and the middle one-fifth.
As for the richest and the poorest, not only did that gap increase, but New Jersey is one of only 12 states where the average income of the poorest families actually declined over the decade.
During the period of 1998 to 2000, the average income of the wealthiest one-fifth in New Jersey grew by nearly 19% over the 1988 to 1990 period. Meanwhile, average income of the middle one-fifth grew by just over 2% - and the average income of the poorest one-fifth went down. It didn't go down by much, it's true - "only" .2%. But for it to go down at all - or even stay the same or rise a little bit - wouldn't be much of an accomplishment at a time when the nation and the state enjoyed unprecedented good times - or so they said.
These numbers come from a report called "Pulling Apart" that came out this year and was written by two groups based in Washington that we at NJPP work with: the Economic Policy Institute and the Center on Budget and Policy Priorities. As we go on, I'll also be citing some numbers from our own reports: "The State of Working New Jersey" and "Half a Leg Up," which examined the Earned Income Tax Credit in New Jersey.
"Pulling Apart" found that in New Jersey the income of the richest one-fifth was nearly 10 times greater than the poorest one-fifth - the 13th highest gap in the US - and nearly 3 times greater than that of the middle fifth, 9th highest in the US.
When you look at 20-year statistics, New Jersey turns out to be the state where average income growth among the top one-fifth of families was highest in the US. It rose by over 64%, well above the US average of 44%.
So we know now that the boom of the 90s did not bring real income growth and wage growth to the majority of New Jersey workers and households. Only those already at the top of the labor market emerged from the decade in better shape than they went in. Yes, there was a tightening of the labor market that helped increase wages at the bottom and the middle. But it came too late and did not last long enough to have a major impact on wage growth.
We see then, that below the surface of the economic boom serious deficiencies and differences along gender, racial, ethnic, educational and employment categories were exposed.
For example, New Jersey's decline in median wages in the 90s was greater for blacks and Latinos, so existing gaps grew wider.
And while for women the gaps were narrower and median wages actually rose for black and white - but not Latina - women, there was good and bad news: the gap between men and women narrowed only in part from women's wages going up; the rest came from men's wages going down.
We also saw that, in large measure, wage declines were primarily not due to people changing from one type of work to another. Instead, changes within industries were by far the major factor. Which is to say: many people were simply getting paid less than they got before, to do substantially the same work.
Using education as a yardstick, wages fell for all but college graduates and even among college graduates wages rose only for women. Hardest hit of all were those without a high school diploma: their wages fell by more than 17%.
Just a few more noteworthy numbers: households at the bottom end of the income levels took in less in the 90s than households at the bottom in the 80s. But at the other end it was the opposite story. Households at the top in the 90s were even better off than households at the top in the 80s.
And the share of workers making less than a living wage rose in the 90s. At the end of the decade a living wage was $12.75 an hour for a family of four, not the $8.50 an hour officially classified by the federal government as a wage that puts a family above poverty - and certainly not the minimum wage of $5.15 an hour. This year, Legal Services of New Jersey reported that the amount of money a family of four in New Jersey must make in order to take care of basic needs varies depending on county of residence from a low of around $30,000 to a high of $57,000. By the way, to make $30,000 a year at $8.50 an hour takes about 68 hours of work per week.
I'm tossing out a lot of numbers, but of course this is also about policies and choices and decisions made by a society. Or in the case of New Jersey maybe I should also say, "decisions not made." I say that because in New Jersey we are still living with - clinging to, refusing to reform - an upside-down and backwards tax structure that relies more than any other state does on local property taxes, even though the value of someone's house is a notoriously inaccurate measure of their ability to pay (you can ask my 83-year-old, retired, widowed mother in law who pays 25% of her income in property taxes). That system might have made some sense in colonial times when only the most well off owned a house and land. But today that creaky relic of the past leads to inequity that holds us back and keeps us apart.
In New Jersey, according to the most recent statistics, the bottom fifth of people pays nearly 16% of their yearly income into state sales tax, state income tax and local property tax, while the top fifth pays less than 10%.
And in New Jersey some of the decisions we do make are half-hearted. Take the Earned Income Tax Credit, recognized around the nation by Democrats and Republicans, liberals and conservatives, as a highly effective tool to help people work their way out of poverty. In 2000, New Jersey created a state EITC and became at that time the only one of the 12 states with EITCs to cut off eligibility at an income level below that of the federal Earned Income Tax Credit. Two years later, 17 states have EITCs - and New Jersey is still the only one that throws working people off the cliff. Depending on its size, a working poor family can earn as much as $34,178 this year and still get some level of federal EITC benefits. But New Jersey cuts them off at $20,000, far below what's needed for a family to take care of itself.
New Jersey has not raised public assistance monthly grant levels since 1987, and now, on top of that, we are dealing with a budget crisis that has brought serious spending cuts in programs that help those most in need - even though, frankly, raising taxes on the richest in order to fund programs for the poorest would not only be fairer, but also smarter economic policy. Keep in mind, every dollar in the state budget pays a salary, buys something or goes to a program that helps people in need. When the state cuts the budget by a dollar the person or family who would have gotten that buck now has one dollar less to spend.
And, yes, when the state raises taxes by a dollar the person who paid that tax also has a dollar less to spend. But there the similarities end. The reality is that the adverse impact on a state's economy from a tax increase is less than it is from budget cuts, if the tax is properly targeted. That's because lower-income families are more likely than wealthy families to spend every dollar they get right back into the economy. Not because they are irresponsible, but because just paying for the basics of life spreads the budget too thin to allow for saving or investing.
Tax a high-income family and some portion of that dollar is likely to come from their savings, not their spending. And not only do lower-income people spend more of each dollar they get, but they tend to spend it closer to home. People buying refrigerators or school supplies are more likely to make the purchases in New Jersey than, say, those spending on vacations. So budget cuts can actually dampen a state economy more than tax increases would. While conventional wisdom argues that tax cuts stimulate the economy the best stimulus package might well be to resist massive budget cuts and support consumer spending by putting dollars into the households most likely to spend them fastest - instead of the other way around.
Now, I can't just leave you with the numbers and theories because there is too much at stake for that. This isn't an academic exercise. Remember in the 90s when you were told that you couldn't have the money you needed because we're cutting taxes? Now they say you can't have the money you need because we have to cut the budget. They got us coming and going. That tells me we need to shift the paradigm. We need to change the terms of debate.
Instead of fighting over the crumbs of a shrinking pie we've got to bake a new pie. That means all of you who work so hard on the spending side of the state budget have also got to get involved in the revenue side of the budget. When issues like estate tax repeal, income tax cuts for the rich and corporate tax breaks come up you need to be there, even though your main focus is health care, or children or housing and even though your advocacy on those issues takes up all your time.
And you need - we need - to run against the wind of a political climate that has those in office fearing nothing so much as raising taxes, for even the wealthiest. They need to become just as fearful of not raising them. I'll give you an example of what we could accomplish if that were the case. Today the state of New Jersey calls on married people to pay 6.37 cents in state income taxes for every dollar they make over $150,000. So they pay 6.37 cents on the 150 thousand and first dollar; they pay 6.37 cents on the 500 thousandth dollar, and the millionth dollar and the billionth dollar.
Well, what if we said, fine, pay that rate on your first million dollars and God bless you - but we'd like you to pay 8% after that. That would be an increase of less than two pennies per dollar - and if we had such a tax in place in 2000, New Jersey's 12,000-plus millionaires would have contributed an additional $405 million in taxes. That would allow us to have a state-of-the-art Earned Income Tax Credit in New Jersey as well as avoid cuts in other programs - and the millionaires would still come out ahead after they got their federal tax cuts and factored in the deductibility from federal taxes of their higher New Jersey income tax.
And why aren't the wealthiest paying more than 6.37 cents per dollar? Is it because they have refused to? No, it's worse then that. It's because we haven't even asked them to. We're afraid to. Our leaders are afraid to. They say these people create jobs and shouldn't be punished. Well then maybe they should create some jobs that employ people in this country, pay more than $20,000 and include health care. Or they say these people might move out of New Jersey - which means progressive public policy is held hostage by the fear of what a sliver of the population might do. And it effectively means they are the people running this state.
Some will say I espouse class warfare. I'll let Lewis Lapham respond to that. Writing in Harper's magazine last year about eliminating inheritance taxes, repealing workplace safety regulations, easing restrictions on monopolies and other policies he observed that class warfare already is taking place: "not the angry poor sacking the mansions of the rich, but the aggrieved rich burning down the huts of the presumptuous and troublemaking poor."
New Jersey faces a serious financial crisis, no question about it. The recession coupled with the tax cuts, tax-avoidance policies and other fiscal shenanigans of the 90s left the state in lousy shape. But if this might not be the best time to get what we want and need, it is time to lay the groundwork. The Governor walked into a mess. His actions to help solve that problem by making business pay its fair share are laudable. But while we await his vision of what New Jersey should be when prosperity returns, we need to help that process along.
We need to fill in the blanks with progressive policy proposals backed up not only by credible research but also by an unmistakable will to engage at every level. We have to generate ideas and put things on the table so that when prosperity does return to New Jersey it is a far more widely shared and carefully tended prosperity than the prosperity that was squandered away in the 90s.
Wouldn't it be great, 10 years from now, to reconvene and cite statistics showing that everyone is better off, that work is available and rewarded, that blind faith in the market was exposed as the hoax it is and that the people we elect to represent us really do represent us? I believe that can happen. But I can't say for sure it will happen, if we don't get started.
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