Prosperity Watch Issue 19, No. 2: North Carolina's Middle Class Saw Their Incomes Fall During 2000s

Despite its long-standing reputation as a progressive Southern state, North Carolina has experienced a growing divide between rich and poor over the past 20 years. While the wealthiest 20 percent of households saw significant income growth during the 2000s, low- and moderate-income North Carolinians failed to benefit from the most recent economic expansion and actually saw their incomes fall over the same period.  As a result, North Carolina experienced some of the fastest-growing income inequality in the nation, according to a new study  by the Center on Budget & Policy Priorities and the Economic Policy Institute.

Between the late 1990s and the mid-2000s, income inequality in North Carolina grew not only between low- and high-income households but also between middle- and high-income households. As illustrated in the following graph (released with the study), the poorest 20percent of households saw their incomes drop by 3.7 percent, and the middle 20 percent of household saw their incomes decrease by 3.4 percent. At the same time, the top 20 percent saw their incomes go up by 5.5 percent, and the wealthiest 5 percent saw their incomes grow by 8.8 percent.  By the mid-2000s, the top 5 percent of North Carolina households had nearly 13 and a half times the income of the bottom fifth, up from roughly 12 in the late 1990s.

In an unsurprising consequence, the report finds, North Carolina currently has the 17th-highest income inequality between the top fifth and bottom fifth of households, and perhaps even more troubling, the state has experienced the 12th largest increase in income inequality over the 2000s. And among the 11 states for which data is available, North Carolina’s ranking drops to 6th-worse for the greatest increase in income inequality between the richest 5 percent and the middle fifth over the same period.

Because growing income inequality is harmful to family economic well-being and threatens economic growth, North Carolina’s poor ranking on these three different measures of income inequality should concern policymakers. The jobs deficit, the acceleration of low-wage jobs, and the state’s tax code are the key reasons for widening income disparity in North Carolina.

Growing income inequality is not inevitable, however. As policymakers consider reforming the state’s tax code and reshaping the biennial budget, they should pursue policies that reduce rather than exacerbate the state’s worsening trends in income inequality.

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