Maryland's income gap growing wider

The Economy

December 22, 1997|By Jay Hancock

NOT FOR nothing is Maryland the fifth richest state in the country.

Its top tier of families with children -- the upper 20 percent -- earned an average $147,970 a year in the mid-1990s, according to a new study by the Center on Budget and Policy Priorities. That was higher than top-tier incomes for any other state in the country.

Even Maryland's middle class is well off. The middle 20 percent of Maryland's families were earning $52,992 a year, and at $33,004 a year Maryland's next-to-bottom 20 percent had higher average incomes than middle-group families in places such as New Mexico, Louisiana and Arizona.

But Maryland has not stayed ahead of spreading income disparity. As in the rest of the country, the top earners here are taking home a bigger piece of the lasagna than they once did.

Average income among the top fifth of Maryland families has soared by 27 percent in real, inflation-adjusted terms since the mid-1980s, the center found by crunching census data. By contrast, the average real income among the bottom fifth of families fell 2 percent to $13,346.

Seen over longer periods, the trend is even more pronounced. The center took snapshots of three similar slices of economic history: 1978-1980, 1985-1987, 1994-1996. Each period was about three years after a recession, so theoretically they can be compared without business-cycle quirks skewing the results.

Since the late 1970s, incomes of Maryland families in the top slice have soared by 37 percent. Incomes of families in the bottom fifth fell by 9 percent.

The top earners who make up only a fifth of Maryland's population banked a whopping 45.9 percent of the state's income in the mid-1990s. Families in the middle fifth earned just 16.4 percent of Maryland's income, and the poorest fifth just 4.1 percent.

"Maryland was a pretty clear example of the nation as a whole," said Amy Coates Madsen, of the Maryland Budget and Tax Policy Institute.

In fact, in every state but two, the gap between the top-earning families with children and the lowest has expanded since the late 1970s, the study found. In 44 states, upper-tier families have boosted their income while lower-tier families have lost it.

As striking as the study's findings are, they are almost certainly understated.

Most glaringly, they don't account for paychecks of more than $100,000. The CEO who makes $3 million a year would be listed by the census as making $100,000. The census also doesn't measure capital gains -- profits made from the sale of stock, houses and other assets. With a soaring stock market, capital gains have been a significant source of family income recently.

So if anything, income disparity is even greater than what was reported.

Even conservatives agree that the income gap is widening. The point of debate is how much that matters.

Income is only one way to gauge household economics. It's popular way because the data is readily at hand in the computers of the Internal Revenue Service.

But some analysts argue that it's not the best way.

Wealth -- household net worth -- can be a better marker of riches than income. Wealth is riches. The world is full of $200,000-a-year doctors hocked to the earlobes and $10,000-a-year potters with trust funds from Grandpa. The potters may be wealthier.

Statisticians have a smaller, dimmer window on America's wealth than on income, but some encouraging signs are showing through the glass.

More than 40 percent of American families now own stocks directly or through mutual funds, the Federal Reserve reported earlier this year. Thanks in part to rising housing values, the mean net worth of families with incomes of less than $10,000 rose from $26,000 in 1989 to $46,000 in 1995, according to the Fed's Survey of Consumer Finances.

The other wrinkle in income studies is upward and downward mobility. The low-income families of today may not have been the low-income families of a decade ago; they may have been rich ones, and vice versa.

A family that was poor in 1980 was more likely to have moved into the richest, top-fifth bracket by 1990 than to have stayed in the bottom group, according to the Census Bureau.

"Yes, there are millions of poor households today. But they are not the same families that were poor 10 or 20 years ago," says Stephen Moore of the conservative Cato Institute.

Even so, the middle class is shrinking. And the income spigot -- the oncoming stream of new wealth -- is aimed at some neighborhoods more often than others.

If that continues, the United States might not be the only country where swelling clots of money block democracy's way.

Pub Date: 12/22/97

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