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Globe West

Following the money

With IRS returns showing a widening income gap, some analysts say it's time to revamp the tax codes

Email|Print|Single Page| Text size + By Lisa Kocian and Matt Carroll
Globe Staff / April 13, 2008

Newton, Wellesley, and Weston got richer. Framingham and Marlborough got poorer.

That's the story told by a review of average annual income among residents who filed tax returns, based on IRS data. Nowhere in Greater Boston was the contrast in incomes more stark than in the ZIP codes of the western suburbs.

Weston boasted the highest average income in the state at $531,374 in 2005, the most recent year available, a whopping 59 percent increase over 2001.

Over the same period, Marlborough's 01752 ZIP code saw its wealth decrease by 3.5 percent to $57,746 in 2005, compared with $59,861 in 2001.

"High-income people in Massachusetts have seen extraordinary growth in their incomes over the past decade, and the challenge for the state is to expand that circle of opportunity so that low- and middle-income people can make that same kind of progress," said Noah Berger, executive director of the Massachusetts Budget and Policy Center, a nonprofit organization that studies economic issues.

The key to controlling the growth of income disparity, say local analysts, is to consider whether the income-tax bills due Tuesday are based on fair policies.

"Most of the benefit of tax cuts over the last decade went to the same high-income residents that have been winners in the economy generally," said Berger.

In 1998, Massachusetts lowered the tax rate on dividends and interest, a type of income that is much more common among residents able to put money aside in investments. On average, the tax cut saved $10,000 for the wealthiest 1 percent of the state's population, while trimming $55 from the bills of middle-income families, Berger said.

State Senator Pam Resor, an Acton Democrat who represents both high-income Sudbury and low-income Marlborough, said the widening income gap is a problem statewide and nationwide, and the tax structure only furthers the divide.

"I frankly believe the Commonwealth needs to have a graduated income tax," she said.

The state's flat tax on income, now at 5.3 percent, hurts people at the lower income levels, said Resor, but is a relatively painless bill for the wealthy.

Transforming the tax code would be tough, however, because it would require a change in the state's constitution, she said. It's been tried before, most recently about 15 years ago, but without success.

Resor said the income disparity makes it harder for families to improve their lot; for example, by putting children through college.

"It's not as democratic in my mind," she said. "Our middle class has slipped to a lower class. We just have two classes, is what's happening. That middle class group has always been so reflective of American values - I feel like we're losing that."

The Globe survey examined average income of what are called "filers," which could be either individuals or couples filing a joint tax return. Of the area's 37 towns and roughly 52 ZIP codes, West Newton (02465) saw the biggest income jump between 2001 and 2005, from $97,707 to $207,217, a 112.1 percent increase. (The income figures are not adjusted for inflation.)

One anomaly in the data could not be explained. In 02465 and several other ZIP codes, the number of filers increased dramatically from 2001 to 2005, even though the town populations remained stable. It's unclear why. Spokespeople for the IRS and the US Postal Service could not offer an explanation. The spokesman for the postal service noted that ZIP codes were reorganized in those communities in 1998, although he did not think that would still show an effect so many years later.

The income levels in about half of the ZIP codes in area communities increased more than the state average of 13 percent. Only four ZIP codes saw a dip in average income: two in Framingham (01701, 01702), and one in Southborough (01745) and in Marlborough (01752).

Most of the communities registered incomes in 2005 that were higher than the state average of $67,419. Next in line after Weston were Wellesley (02481) at $364,281, and Dover (02030) at $361,394.

The lowest average income was recorded in downtown Framingham (01702) at $46,900.

Framingham and Marlborough stand out as the two communities that have seen low incomes decline even further. They also have in common large immigrant populations. But a lot more research would be needed to define any correlation, according to Harold Petersen, an associate professor of economics at Boston College.

"I don't think the influx of immigrants is responsible for the economic deterioration," he said. "I can't imagine that it is.

"I suspect that this is what happens: a town gets economically distressed, industry moves out or something else happens," Petersen said. "Then property values fall . . . Lower-cost housing is probably attracting the immigrants."

The income gap is growing across the country, but it's worse in Massachusetts than in most states, according to a report released Wednesday by the Center on Budget and Policy Priorities, a research organization based in Washington, D.C.

The Bay State's gap between the richest and poorest is the fourth worst in the country, the report found. The richest 20 percent of families have average incomes that are 8.2 times higher than the poorest 20 percent of families, according to the report.

One of the reasons for the gap, said Berger, is that the economy is becoming more knowledge-based in general, and since Massachusetts has one of the best-educated workforces, many of its residents are in a position to take advantage of certain broader economic trends.

"I think the trends in Massachusetts both show real dangers and real opportunities," said Berger. "It's a matter of developing state policies that ask those who have benefited most from economic growth to help contribute to programs that will expand opportunities for everyone."

And it is to everyone's benefit to do just that, said Petersen, the Boston College economics professor.

"The movement is disturbing even to conservatives like me because a stable society is much better off with a more equal distribution of wealth," he said, adding that it might take tax changes to get there.

Historically, incomes were actually becoming more equal in the United States between 1929 and 1973, he said. But since the 1970s, the reverse has been true.

Petersen said there are many reasons: technological advancements that put a bigger premium on higher education, the increase in single-parent households, globalization.

"Globalization means that less-skilled workers are competing in a world market for labor to a much greater extent than 40 years ago," he said. "This increased competition among low-income workers is partly due to reductions in transportation costs and communication costs."

To be sure, outsourcing has meant that higher-income engineers and programmers are also competing, for example, with their counterparts in India, he said, but the dynamic is much more pronounced among low-income workers.

Widening income gaps are a trend that should concern everyone, Petersen said.

"We're much better off as a society with somewhat more equal distributions."

Lisa Kocian can be reached at 508-820-4231 or lkocian@globe.com.

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