Arkansas is among the states with the highest income inequality in the country, according to a new report from the Center on Budget and Policy Priorities. Arkansas ranks 18th in the country, with its richest residents— the top 5 percent of households— having average incomes 15 times as large as the bottom 20 percent of households and 5 times as large as the middle 20 percent of households. The top 5 percent of Arkansas’s households receive 19 percent of the state’s income, even without counting capital gains.
The report, How State Tax Policies Can Stop Increasing Inequality and Start Reducing It, also shows that the concentration of income among the wealthiest residents is striking in every state – reflecting three and a half decades of unequal income growth:
- In Arkansas, the average income of the richest 5 percent of families ($259, 930) dwarfs that of the poorest 20 percent ($17, 879) and middle-income families ($52,674).
- In Arkansas, the income change for the top 1 percent of households has increased by 110 percent since 1979, compared to just 9 percent for all other households.
The report found that for more than three decades, income gains in the American economy have accrued largely to the richest households, while many middle and lower-income Americans haven’t shared in the nation’s growing prosperity. This has reduced opportunities for working people striving to get ahead and weakened our overall economy.
“Though the growth in inequality reflects a host of long-standing national and global economic trends that are largely outside state policymakers’ control, Arkansas policy choices can make matters worse or improve them,” said Rich Huddleston, executive director of Arkansas Advocates for Children and Families. “Arkansas should avoid actions − such as cutting income taxes for the wealthy − that expand inequality by shifting more of the tax responsibility to lower- and middle-income residents. Instead, the state should adopt changes that increase the share of taxes paid by high-income earners.”
The report offers recommendations about how state tax policies can be used to begin to reduce inequality. In Arkansas, these include:
- Eliminating tax breaks for capital gains (realized income from the sale of assets such as stocks and bonds and other investments), tax breaks that overwhelming benefit the state’s wealthiest citizens.
- Closing corporate income tax loopholes through policies like combined reporting so corporate profits earned in Arkansas are taxed here.
- Enact a state earned income tax credit (EITC), which boosts incomes among low- and moderate-wage working families.
- Maintain an overall tax system that raises sufficient revenue to pay for the building blocks of shared prosperity, including education, health care, highways and roads.
“The fact that the lion’s share of income gains has gone to the wealthiest residents contradicts the basic American belief that hard work should pay off — that the people who contribute to the nation’s economic growth should reap their share of the benefits of that growth,” said Elizabeth McNichol, a senior fellow at CBPP the author of the report. “Such inequality is both a barrier to Americans striving to provide for themselves and their families and a drag on future economic growth. Reducing it should be a high priority for state policymakers.”
Read the full report: How State Tax Policies Can Stop Increasing Inequality and Start Reducing It.
See an Arkansas-specific snapshot of income inequality in the state here.
For more information or to set up an interview about this report, contact AACF communications director Amanda Hoelzeman.