Important new report from the Economic Policy Institute on the continuing pulling away of the top one percent from the bottom 99 percent. The big picture story is as EPI writes:
Examining the growth of income over the past century, we find growth was broadly shared from 1945 to 1973 and highly unequal from 1973 to 2007, with the latter pattern persisting in the recovery from the Great Recession since 2009:
- Faster income growth for the bottom 99 percent of families between 1945 and 1973 meant that the top 1 percent captured just 4.9 percent of all income growth over that period.
- The pattern in the distribution of income growth reversed itself from 1973 to 2007, with over half (58.7 percent) of all income growth concentrated in the hands of the top 1 percent of families.
- So far during the recovery from the Great Recession, the top 1 percent of families have captured 41.8 percent of all income growth.
More evidence that the preeminent economic challenge of our generation is finding ways to combat the Great Decoupling. Where economic gains are increasingly concentrating at the top. We structurally have an economy where way too many households are not sharing in the benefits of a growing economy. It’s why we have proposed that a rising household income for all be the mission of state economic policy. We need to stop assuming that a low unemployment rate or growing economy/strong domestic auto industry leads to an economy benefiting all. It doesn’t.
In this post I want to focus on the report’s state and metropolitan area data, specifically for Michigan and Minnesota and metro Detroit, Grand Rapids and Minneapolis. The income data in the report comes from tax returns. So it is a different definition of income that you get from per capita income or median household income. The big differences are that the IRS income data include capital gains and does not include government transfer payments or employer paid benefits. The IRS income data is probably far closer to what each of us think of as our annual income.
Turns out using this definition of income the gap between the average household in the 99 percent in Minnesota and Michigan is huge. And that is particularly true between the three big metros.
The average income for bottom 99 percent taxpayers in the U.S. is $50,107. In Michigan it’s $42,825. In Minnesota it’s $56,728. Michigan’s average household income is 15 percent below the national average, Minnesota’s is 13 percent above. And Minnesota’s bottom 99 percent since the end of the Great Recession have enjoyed greater income growth. Average real income is up 16.4% from 2009-2015 in Minnesota compared to 14.1% in Michigan and 10.3% percent nationally.
Metro Detroit’s average household income using IRS data is $47,344; metro Grand Rapids’s is $47,150; metro Minneapolis is $65,792. The big difference between Michigan and Minnesota is the difference in prosperity between the big metros in the two states. This is true nationally because big metros are where American’s mass middle class is concentrated. The average bottom 99 percent metro Minneapolis household in 2015 had roughly $19,000 more income than a similar household in both metro Detroit and metro Grand Rapids. Metro Minneapolis’ average household income is 31 percent above the national average and 39 percent above both metro Detroit’s and metro Grand Rapids’.
In our Minnesota case study State Policies Matter: How Minnesota’s Tax, Spending and Social Policies Help It Achieve The Best Economy Among the Great Lakes States and in our metro Minneapolis case study Regional Collaboration Matters: How Metro Minneapolis has forged one of the wealthiest and most livable metropolitan regions in the United States we detail the state and regional policies that have made Minnesota and metro Minneapolis the most prosperous in the Great Lakes.
At the core it is an understanding that human capital is the asset that matters most to economic well being, not being the low tax/low cost place to do business. So that preparing, retaining and attracting talent is what matters most to economic success. And that requires public investments in education and infrastructure as well as quality basic services and amenities. Minnesota has been on this path for decades. Michigan has chosen for decades the low tax/low cost strategy. These data are more evidence that it is time for Michigan to change strategy.