Lowering the `ghetto tax'

July 23, 2006

Being poor, the author George Orwell observed, is "extraordinarily complicated." And if you're poor in Baltimore, it's also extraordinarily expensive. Families in lower-income neighborhoods pay more for the same car and home insurance, the same appliances, furniture, food and loans than do their wealthier counterparts living in other parts of the city. In the absence of large retail stores, banks and credit unions and, in many cases, the capability of online comparison shopping, consumers in poor communities pay top dollar. It's an urban irony: The people least able to afford essential goods and services have to shell out more to get them. In the parlance of street economics, it's called the "ghetto tax."

In a recent study of poverty in Baltimore and 11 other metropolitan centers, Brookings Institution's Matt Fellowes points out that finding ways of reducing the ghetto tax - drawing banks and supermarkets into low-income neighborhoods and conjuring other price-dipping innovations - by just 1 percent could put $6.5 billion back into the hands of poor city residents across the country. That's serious money that could be spent on health, education and other necessities to help free families from the burdens of poverty.

Baltimore has had some limited success in stabilizing neighborhoods by luring supermarket chains to open or expand stores in poorer neighborhoods. That's a strong step forward that should be followed by others, notably banks. Maryland could benefit by following the example of New York, where the state banking department offers enticements for banks to open branches in poor neighborhoods by depositing government funds at low interest. Residents are encouraged to open accounts and avoid paying high fees charged by street-corner check cashers. While Maryland has banned usurious payday lenders, some people turn to pawn shops for quick cash. Mr. Fellowes says they'd be better off using credit cards, if they qualify, because interest rates paid by plastic users doesn't come close to the nearly 400 percent tacked on by some pawnbrokers.

Another underutilized front in the fight against poverty is educating low-wage earners about the benefits of online shopping. In today's wired world, the Internet is the smart consumer's best tool to save money. But if you live in a poor neighborhood and have neither the know-how nor the equipment to get online, real bargains are rare. Technology should be made available to every city resident, even if it means subsidizing community centers and churches with online access.

Orwell was right. Being poor is complicated. But with creative thinking, it doesn't have to be insurmountable.

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