Income Inequality is Less Important Than Economic Growth

By David Flemming

Like it or not, Vermont needs its top 1% of income earners for economic growth and to fund our government services.

According to economist Art Woolf, as the incomes of those earning at least $500,000 fell between 2014-16, income taxes paid by Vermonters earning at least $500,000 declined $30 million. If the past actions of our legislature is any guide, our legislature will forgo cutting spending and fill this gap by squeezing more out of taxpayers across all income brackets, not just the 1%.

Rather than discuss the income tax decline, some of our legislators have tried to distract Vermonters from the fact that the 1% are providing so abundantly for Vermont by stoking our sense of envy. On March 16, Sen. Bernie Sanders (I-Vt.) hosted a nationally televised town hall focused on income inequality, an issue that has been thoroughly researched in the past few years.

Contrary to what Sanders may think, the left-leaning Economic Policy Center’s (EPI) income inequality data shows a strong correlation between the success of the 1% and the 99% at earning higher incomes. Between 2009-14, the 15 states with the highest income gains for the 1% gave those in the 1% bracket a 26% average income increase, while the 99% in those states increased their incomes by a state average of 2%. On the other hand, in the 15 states where the 1% only increased their incomes by a state average of 1.4%, the 99% saw their incomes increase by a minuscule state average of 0.8% over 5 years. This means that an average American in one of the 15 best states for the 1% saw their income grow three times as rapidly as in the 15 states where the 1% was least able to grow their incomes.

EPI’s data is not completely above suspicion, since it was founded by a coalition of eight labor unions and has supported unimaginative policies like the $15 minimum wage with faulty data techniques in recent months. I suspect that the inequality data may be similarly skewed to exaggerate the actual gap. Still, it can be used to help lay out the principle that inequality is of secondary importance to partnering with the 1% to propel economic growth in Vermont.

Would you rather Vermont be in the one-percent’s top 15 states, or remain in the one-percent’s bottom 15 states? To our legislators primarily interested in reducing inequality, remaining in the bottom 15 states makes a lot of sense for Vermont. According to the EPI data, the Hawaii-one-percent-club saw their incomes fall nearly 10% from 2009-14. However, Hawaii’s 99% saw their incomes fall only 2.7% during that time-frame! Just like that, inequality was reduced, because the poor saw their incomes decrease less than the 1%. Somehow, I don’t think many Vermonters would prefer decreased incomes, even if the highest income earning Vermonters saw their incomes fall even more.

Regardless of the importance we place on reducing income inequality, it should always take second fiddle to ensuring positive income growth rates for all. Vermont’s government can no longer afford to see businesses as hostile to the interests of low and middle income Vermonters. If our legislators change their outlook, Vermont (top income tax bracket of nearly 9%) could begin to look less like Hawaii (with a top income tax bracket of 11%), where the 1% and 99% each saw decreased incomes, and more like Utah (flat income tax of 5%), where the 1% and the 99% saw increased incomes. The one-percenters of Utah increased their income by 16% while the bottom 99% grew their incomes by 11%. Yes, Utah’s income inequality gap widened from 2009-14, but more importantly, Utah’s 99% and 1% both earned more.

Vermont’s inequality grew less than Utah’s from 2009-14. Vermont’s 1% increased their incomes by 7.6% and the 99% increased theirs by 3.9%. But since even the 1% of Vermont were behind the income gains of the 99%  in Utah, this success at decelerating inequality doesn’t mean much by comparison.

So, rather than following Senator Sanders and building resentment toward the 1%, perhaps we should be trying to encourage high-income earners to move to the state, and offer our services in helping them build the next great private enterprise that will provide jobs and sustainable economic development.

{ 3 comments… read them below or add one }

Vincent C Hunter March 24, 2018 at 12:20 am

One might even opine the economic growth is the ONLY antidote to economic inequality (i.e. inevitable disparity)


Jim March 24, 2018 at 12:59 pm

What happens when the well runs dry? These clowns can’t look beyond their nose when it comes to long range thinking.


William Hays March 26, 2018 at 1:46 pm

These “clowns” never see their noses, which are firmly ensconced in the backside of the DNC.


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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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