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The Center on Budget and Policy Priorities (http://www.cbpp.org/)  is a nonprofit, nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs.

The Economic Policy Institute (http://www.epi.org/) is a nonprofit, nonpartisan think tank that seeks to broaden the public debate about strategies to achieve a prosperous and fair economy.

A new study by the Center on Budget and Policy Priorities and the Economic Policy Institute suggests the gap between the richest and poorest families, and between the richest and middle-income families, grew significantly in most states over the past two decades. It goes on to say that the trend of growing inequality accelerated since the late 1990s as incomes fell for poor families and stagnated for middle-income families in a number of states.

Despite the recent years of so-called economic prosperity, low- and middle-income families have reaped few gains since the late 1990s. As incomes for those for the top fifth of the income scale by 9%, average incomes fell by 2.5% for those in the bottom and rose by just 1.3% for those in the middle fifth.

Jared Bernstein, senior economist at the Economic Policy Institute and co-author of the report said, “As we head into an economic downturn, these families are ill prepared to weather the storm.”

Over the last 20 years, the purchasing power in the majority of states of the poorest families increased by just $93 (9 percent) per year, while the incomes of the richest fifth grew by an average of $36,300 (39 percent).

The states facing the largest income gaps between the top and bottom fifths of families are New York, Alabama, Mississippi, Massachusetts, Tennessee, New Mexico, Connecticut, California, Texas and Kentucky. Nationally the average income of the top fifth of families is more than seven times larger than the average income of the bottom fifth of families.

The report mentions that while many of the causes of widening income gaps are outside states’ control, states can mitigate the problem of growing inequality in a number of ways.

Specifically, states can close the budget gaps that the downturn has caused without widening income gaps. For example, states can avoid raising sales taxes and fees that hit low-income families hardest, and rely more on income taxes. Or, they can enact or expand tax credits to low-income taxpayers to offset the impact of regressive tax increases.

State policy makers can also bolster the safety net in order to improve economic opportunity for those struggling to make ends meet. States can:

Ø       update unemployment insurance systems to better reflect today’s workforce,

Ø       extend the amount of time workers receive benefits during an economic downturn,

Ø       raise the state minimum wage and index it for inflation, and

Ø       maintain or improve support services such as transportation, child care and health coverage.

The study reports that income inequality grew over the last two decades due to both economic trends and government policies. Wages and salaries grew faster for those at the top of the income scale. Various factors explain growing wage inequality including long periods of higher-than-average unemployment, globalization, the shift from manufacturing jobs to low-wage service jobs, immigration, the weakening of unions, and the declining value of the minimum wage.

The full report can be found at http://www.cbpp.org/4-9-08sfp.htm.

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