The report, compiled by two Washington, D.C. think tanks, finds growing inequality nationwide since the 1970s.
Louisiana has the sixth-highest level of inequality in the United States, a problem that has worsened in recent years due to stagnating wages for the poorest residents coupled with increases by those with high incomes, according to a report on the gap between rich and poor residents released Thursday. The state has seen the gap between those two population segments grow since the 1970s, a trend also apparent in the rest of the country, according to the report.
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"Before the Great Recession hit our economy was growing," said Elizabeth McNichol, a senior fellow at the Center on Budget and Policy Priorities and one of the authors of the report. "This growth was not experienced by much of America and many state policies served to widen the gaps between low and middle income households and those on the top."
The findings in the report, which was put out by the Center on Budget and Policy Priorities and the Economic Policy Institute in Washington, D.C., show the need to expand tax credits low income residents in Louisiana, said Jan Moller, director of the Louisiana Budget Project in Baton Rouge. All three groups are liberal thinks tanks that look particularly at fiscal policy and issues of inequality.
The study is based on U.S. Census data that tracks income after federal taxes and benefits are taken into account. It tracks inequality from the late 1970s, a time period chosen because it represents the end of a pattern that began in the 1950s and saw all income levels increase, McNichol said.
The state with the highest level of inequality, based on data from 2008 to 2010, is New Mexico, with the top 20 percent of residents making 9.9 times as much as the bottom 20 percent, according to the report. Arizona, California, Georgia and New York round out the top five.
The most equal state is Iowa, where the highest earners make 5.6 percent as much as those at the bottom.
In Louisiana, the richest 5 percent of households have an average income of more than 14 times the size of the bottom 20 percent, according to the report. Those top earners, who average about $238,600 a year, make about 4.5 times as much as the middle 20 percent of earners.
Nationally, the richest 5 percent of households make more than 13 times as much as the poorest 20 percent and 4.5 times as much as the middle 20 percent.
Compared to the rest of the country, Louisiana has not seen inequality spike as much since the 1970s. During that time frame, the richest fifth of the population saw their incomes rise by 114.1 percent while the poorest 20 percent saw an increase of about 6.9 percent. In Louisiana, those top earners saw a 61.9 percent increase during those decades while the incomes of the bottom 20 percent increased by 9.6.
The report may actually understate the problem of inequality in Louisiana because while it accounts for federal taxes the Census data do not reflect the burden of the state's sales tax, Moller said. Louisiana's sales tax rate is the third highest in the country, with a state sales tax of 4 percent is combined with an average local levy of 4.86 percent, according to a report issued earlier this year by The Tax Foundation, a conservative think tank in Washington, D.C.
"We have a tax code strongly tilted toward the wealthy and one of the most regressive tax structures in the country," he said.
To improve the situation, Moller said lawmakers should double the state's Earned Income Tax Credit, which benefits low and middle income residents, and maintain or expand tax credits for child care.
Louisiana's state Earned Income Tax Credit, which is worth 3.5 percent of the federal version, is the lowest among the states that offer their own version of the credit.
"The Earned Income Tax Credit is one of the best anti-poverty tools available," he said. "Right now it costs about $45 million a year at the state level so doubling it would double that credit and that's money that would go directly into the pockets of low income working families."
Those families, in turn, will spend the money on goods and services, putting it back into the economy, he said.
Earlier this year, Gov. Bobby Jindal announced that next year's legislative session would focus on overhauling the state's tax code. That announcement came after legislators created the Revenue Study Commission during last year's session. That group is now combing through the state's hundreds of tax breaks and could issue recommendations on removing or altering some of them.
Administration officials have the governor's goal for the session will be to make the tax code "flatter, fairer and lower." The administration has not yet released its specific proposals for revamping the tax code.