The Mean Incomes of Texas

By Greg Moses

In Texas the top-to-bottom ratio is ten-to-one. For every pre-tax dollar earned by a family among the bottom twenty percent, a family in the top twenty percent earns ten dollars and forty cents.

Only two states, New York and Mississippi, outscore Texas on the raw top-to-bottom scale. Massachusetts is tied with us. In California and New Mexico, every single bottom dollar is matched at the top by ten dollars and twenty cents.

Over time the pattern only gets worse. In Texas over a period of 17 years (from 1988 to 2005) the average pre-tax income for families of the bottom fifth grew by 13 percent or about $1,800 in annual income; whereas, for families in the top fifth, pre-tax incomes grew by about 31 percent or $38,000 in annual income.

Tax policies tend to narrow the top-to-bottom ratio by a couple of points. But whether you’re looking at the top-to-bottom ratio before taxes or after, the gap between the top fifth and bottom fifth grows tenaciously year by year.

The same trend holds between top incomes and middle incomes. During the first five years of the 21st Century, middle income Texas families managed to increase their incomes by about one percent or $500 in annual income (after taxes); whereas families from the top fifth added about nine percent to their incomes or about $10,000 (after taxes).

If the business of America is business, then the business of business in America is inequality. And this poses an environmental hazard to civil rights. What can it mean to fight for equality, equity, or equal opportunity in a society where everyone is daily experiencing inequality on the rise?

In a 2008 report co-authored by Arthur B. Laffer, Ph.D., the tax policies of Texas were declared to be better than California’s based upon a supply-side matrix. It was another way of saying in so many words that we should keep a state income tax off the table in Texas.

But what’s interesting about the tax policies of Texas and California from a top-to-bottom point of view is that the tax policies take both states from their top five positions in pre-tax inequality and move them down the scale to where they are tied around 17th place for growth in inequality after taxes.

The tax policies of the Lone Star State have not only satisfied the supply-side guru, but since Texas families start off more unequal than California’s in pre-tax numbers, we have also managed to eliminate slightly more inequality in the process.

In both states, we might add, the top-to-bottom gap in after-tax incomes stands above 13-to-one if by “top” we mean top five percent instead of top fifth. Would it be too radical to suggest notching this number down via tax policies to a more polite dozen-to-one?

Notes

Numbers for the top-to-bottom study (in 2005 dollars) were released last Spring in a joint study by the Center on Budget and Policy Priorities and the Economic Policy Institute. See PULLING APART: A State-by-State Analysis of Income Trends by Jared Bernstein, Elizabeth McNichol, and Andrew Nicholas, April 2008 [in pdf format].

For the “Laffer Report” see, COMPETITIVE STATES, Texas v. California: Economic Growth Prospects for the 21st Century, Arduin, Laffer & Moore Econometrics, August 2008, Texas Public Policy Foundation [in pdf format].

PS

Laffer and associates have also been busy in Oklahoma. A Tulsa Today Staff Report of Nov. 21 covers a supply side review of Oklahoma taxes dated January 2008 [in pdf format]. The report offers fond remembrances of Laffer’s prophetic support for “Prop 13,” the California property tax revolt that signaled the advent of the Reagan Revolution worldwide.

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