An Income Inequality Update

Earlier today, I wrote about the report in my local Connecticut paper describing how income inequality was limiting the growth in state tax revenues (as if this were a bad thing).  At the time, I was unaware that there had, in fact, been a national report on stagnant state tax revenue growth issued by S&P.  The take of the AP from this report was that nationwide, income inequality was limiting state tax revenue.  The report in my local paper was not only wrong, but it also was copied from the national AP report.

The idea that tax revenue growth is a function of income equality rather than income growth is ridiculous no matter if we talk about one state only or about all fifty.  When the national median household income declines (as it has under president Obama), there is simply no way that tax revenues for the states are going to rise absent major tax increases.  It is just that simple.  No attempt to incorporate income inequality into the mix is going to change the actual reality.