Gap between rich, poor Americans accelerates

The gap between rich and poor in many U.S. states has broadened at a quickening pace since the last recession, which could make it difficult for low-income families to weather the current economic downturn, according to a report issued today.

Since the late 1990s, average incomes have declined 2.5% for families on the bottom fifth of the country's economic ladder, while incomes have increased 9.1% for families on the top fifth, said the report from the liberal-leaning Center on Budget and Policy Priorities and Economic Policy Institute.

The result is that the average incomes of the top 5% of families are 12 times the average incomes of the bottom 20%.

• Video: Does income inequality matter?

"The report's bottom line is that since the late 1980s, income gaps widened in 37 states and have not narrowed in any states," said Jared Bernstein, one of the report's authors. "In fact, we've found that the trend toward growing inequality has accelerated during this decade."

Meanwhile, the middle class has remained virtually stagnant, with average incomes growing just 1.3% in nearly eight years, the report said.

More from MSN Money

• Multimedia: The Middle Class Crunch
• Are you in your own personal recession?
• Study: 41 million in America can't afford basics
• Where the millionaires are now
• Living 'poor' and loving it
• How to thrive in a weak economy

The technology boom and economic expansion of the late 1990s put many lower-income families in better positions at the start of the 2001 economic downturn than they are in now, when many economists say a downturn has begun, Bernstein said.

Elizabeth McNichol, another author of the report, said wages grew before the 2001 recession but have not increased much during the past several years of recovery. In a conference call with reporters, she pointed to Connecticut, which has had the greatest increase in income inequality since the 1980s, according to the report.

In Connecticut, incomes of the wealthiest 20% are eight times those of the poorest 20%, the report said. New York has the greatest disparity, with incomes of the top 20% 8.7 times the bottom ones, followed by Alabama, where the top are 8.5 times the bottom.

Only recently has Connecticut begun recovering from the downturn of six years ago, according to Douglas Hall, the associate director of research for Connecticut Voices for Children, who participated in the call. By August 2007 the state had gained enough jobs to make up for those lost in the last recession, he said, but now it is losing them again.

Even though the study did not include capital gains, Bernstein said the effects of booming wealth on Wall Street for most of this decade did contribute to the spread between incomes, showing up as higher salaries.

Some have criticized income inequality studies. Writing for the conservative Cato Institute last year, Alan Reynolds said tax-law changes skew the numbers. For example, executives once took stock options that were taxed as capital gains but now take nonqualified stock options that are taxed as salaries.

Bernstein said that if the report had considered capital gains, the disparities would have likely been greater, as capital gains generally affect higher-income people.

State-by-state comparison:

Rate this Article

Click on the stars below to rate this article from 1 to 5 Low

Thank you for rating.

High

• View all top-rated articles
• E-mail us your comments on this article
• Discuss in a message board