Income
inequality continues to grow in Colorado, mirroring the widening gulf
nationwide between the rich and everyone else. Data from our recent report, the
State of Working Colorado 2012, show that while lower- and middle-class wages
decline and stagnate, top earners continue to enjoy increased earnings.
From
2000-11, workers in the top 10 percent of the income distribution saw wages
rise 8 percent, while workers in the bottom 10 percent saw wages decrease by 8
percent. And those figures don’t even include accrued financial wealth, a major
source of income for the wealthiest Coloradans.
Tax
policy is one way to reduce this growing disparity. Colorado’s current tax
structure is regressive, meaning residents with lower incomes pay a higher share
of their incomes in taxes. To make taxes more progressive, Colorado could
return to a graduated income tax system. Such a system is fairer, addresses
exploding income inequality, and could raise additional revenue for key state
services in a time of great need.
The
tax code also can target support for families in need through progressive
credits like the earned income tax credit and the child tax credit, which boost
the incomes of the lowest earners. Conversely, cleaning up the tax code to reduce or
eliminate unfair or inefficient tax breaks would allow more revenue to go to
services Coloradans need most.
Below
is a compilation of data from the State of Working Colorado 2012 that show the
growing income gap in our state.
Income
If
all households were lined up by income level, the median household income of
the group would be the amount earned by the household in the middle of the
pack. The median value is often more representative of the majority than an
average value, which can be skewed by extreme outliers (upward, in the case of
income). Like many other measures of economic potential in the state, Colorado
median household income is higher than such income for the rest of the country.
Colorado has maintained its income advantage since the 1990s. In 2010, the
median household income in Colorado was $54,046, versus $50,046 for the nation.
(Figure 1) That ranks 15th highest among states.
Despite
Colorado’s relative wealth, income during the past decade has decreased
significantly. The decrease in real median household income in Colorado was
statistically significant from 2000-10 as well as pre- and post-recession.
(Figure 1)
Productivity
Even
though income has declined and wages remained stagnant over the decade, worker
productivity has increased. (Figures 2-4) That means the payoff of increased
worker productivity is not going to the workers themselves.
Income distribution
The
distribution of income in Colorado remains uneven, showing the gains of
increased worker productivity increasingly benefit those at the top. Income
percentiles demonstrate the gap by communicating relative rankings. For
example, a household in the 10th percentile earned more than the
bottom 10 percent of the workforce; similarly a household in the 90th
earned more than 90 percent of the population.
Like
the nation as a whole, income inequality continues to grow in Colorado. The
inequality is greatest at the top income levels; in other words, the gap
between the middle (median) and the top is much greater than the gap between
the middle and the bottom. (Figures 3-6)
While
Coloradans in the 90th percentile of wages enjoyed more than seven
times the earnings gains of median earners, wages for the bottom 10 percent
decreased. (Figures 3-4)
From
2009 to 2010 annual household income decreased for everyone but the top
earners, whose income increased. (Figure 5)
While
the bottom 20 percent of earners held only 3.4 percent of all income in
Colorado, the top 20 percent of earners had almost 50 percent.[1]
(Figure 6) The growing economic inequality in Colorado and the nation as a
whole is a troubling trend. Increasingly, the American economy is serving the
wealthy at the expense of the poor, and if left unattended by policymakers,
will have serious economic repercussions for everyone.
[1] Income
includes earnings through wages and salaries, transfer income, like
unemployment insurance payments or child support payments and dividend,
interest and rental income. One way to show the distribution of aggregate
income is to line up all households and divide them into quintiles where each
quintile represents 20 percent of all households.
Median wage by education
Education
plays a large role in economic livelihood. In 2011, Coloradans with a
bachelor’s degree or higher earned more than twice as much as those without a
high school diploma. In the same year, graduating high school meant almost a 40
percent increase in wages, while obtaining a college degree meant an additional
55 percent to 80 percent increase in wages for those with only a high school
diploma or some college.[2]
(Figure 7) The numbers stress the necessity of an accessible and affordable
education for all Coloradans.
[2] It
is important to note that the relationships here are not purely causal. That
is, it is unfair to say that completing college will cause a 50-some percent
increase in wages. While that may or may not be the case, strictly speaking the
data show only that workers with a bachelor’s degree or higher earned 50 to 60
percent more than those who only completed high school.
County income distribution
Household
income varies drastically among Colorado counties. The highest-income county in
Colorado is Douglas County, with a median household income of $99,198. The
lowest-income county in Colorado is Costilla County, with a median household
income of $24,388. (Figure 8) The difference between the two counties is almost
$75,000, demonstrating just how concentrated wealth can be.
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