Poverty in a Rich State

 

It’s easy to get caught up in all the problems in our state and to forget to count our blessings.  According to the US Census Bureau 2006 American Community Survey, Maryland has the highest median family income in the nation and the lowest poverty rate.   Our revenue system protects the poor more than many other states.  However, poverty in Maryland is concentrated in certain jurisdictions and segments of the population.  For those families, it is all the more tragic to be poor in a rich state.

 

High Incomes and Low Poverty Rates

Maryland’s median household income for 2006 was $65,144, edging out second-place New Jersey by $674 (the difference between the two states is actually well within the Census bureau’s statistical margin of error, so you could consider it a statistical “tie).  The “median” is the income level right in the middle: half of Maryland households made more that $63,144 and half made less. The US median is $48,451.

 

The figures show that under the official federal definition of poverty, there were 428,345 poor Marylanders in 2006: 7.8% of the population.  The overall poverty rate for the US is 13.3%. 

 

Troubles Hidden in the Numbers

Although Maryland has one of the lowest poverty rates among the states, a few points ought to draw our concern.

• 428,000 is still a lot of people.  For example, it’s about equal to total number of people living in the nine Eastern Shore counties.
• The state’s child poverty rate in 9.7%, while the poverty rate among the elderly (65 and over) is 8.2%.
• The poverty is concentrated in Baltimore City and a few rural areas.  Baltimore City’s poverty rate is 19.5%.  Allegany and Wicomico counties have poverty rates exceeding 10%.  The child poverty rate in Baltimore City is 27.5%.  Child poverty also exceeds 10% in Wicomico, Allegany, Baltimore and Washington counties.  The survey reports only jurisdictions with total populations over 65,000, so we do not have comparable figures for the eight smallest jurisdictions. 
• The official definition of poverty understates the number of people who lack the means for a decent living.  The official definition of poverty has not changed materially since the 1960’s except to adjust for inflation.   For example, the poverty threshold for a single, non-elderly adult living alone is 10,488 in 2006.  For a family with two adults and 2 children it’s 20,444.   In one survey, 59% of respondents thought it would take at least $40,000 to support a family of four at a decent level.  

 

Poor Families Are Somewhat Protected from State Taxes 

Maryland’s tax system does more than most states to spare citizens living in poverty.  The very poor are protected from paying state income tax.  For example, for a two-parent family of four, no tax is due in incomes below $31,000.  

Only six states have higher tax thresholds.  For working families, Maryland provides a refundable earned income tax credit (EITC).  As a result, a family of four with wage earnings and the poverty level of income would actually receive a $423tax refund to supplement their earnings. 

 

Maryland relies more on income tax revenue than most states: 42% versus the national average of 35%.  The flip side of this fact is that Maryland relies less on the general sales tax:  23% versus the national average of 32%.   Since the sales tax is less responsive to incomes, it hits lower-income families harder.  Maryland’s revenue system draws less from this regressive tax than most other states.

 

As noted in B&T Policy Institute Rates the Special Session, the special session’s legislative action disproportionately burdened Maryland’s poorest households.  It generates the lion’s share if its revenue by raising the sales tax rate – one of the taxes that hits low income earners harder that upper income households.  The regressive sales tax effect was blunted only in part by expanding the Refundable Earned income Tax Credit and increasing the personal exemption.

 

Protect Our Safeguards – Increase Investments 

We can be proud of our state’s wealth, our low poverty rate, and a tax structure that is kinder to the poor that those of many states.  As the Governor and legislature complete their work to close the state’s budget gap, they will need to identify another $550 million in budget cuts.  They should remember the 428,000 citizens who face the distress of being poor in a rich state.  They need to preserve and enhance the progressive features of our revenue system.  At the same time, they need to promote effective public investments needed to help Marylanders lift themselves out of poverty.  Education, health, workforce development, child care and substance abuse treatment are some of the investments with the highest returns.  We will look more closely at some of these investments in future issues.

MB&TPI

Webster Bruce H., Jr.,  and Alemayehu Bishaw, US Census Bureau, American Community Survey reports, ACS-08, Income, Earnings, and Poverty Data from the 2006 American Community Survey, US Government printing Office, Washington DC, 2007.

Maryland has the lowest rate, but new Hampshire and Connecticut are within the statistical margin of error.

Maryland Department of Planning, Planning Data Services, U.S. Census Bureau's 2006 Population Estimates for Maryland's Jurisdictions, Table 1a. Total Resident Population for Maryland's Jurisdictions, 2000-2006. http://www.mdp.state.md.us/msdc/Pop_estimate/Estimate_06/county/dw_popest_cnty06.htm.  March, 2007.

Greenberg, Mark, Indivar Dutta-Gupta and Elisa Minhoff, From Poverty to Prosperity, A National Strategy to Cut Poverty in Half, Center for American Progress, Washington, DC, 2007, P. 17.  Note that the official definition has other limitations.  For example, it does not adjust for taxes, government benefits, or costs of employment.  That’s an interesting subject for another issue.

US Census Bureau, Housing and Household Economic Statistics Division, Poverty Thresholds 2006.  www.census.gov/hhes/www/poverty/threshld/thresh06.html.  August 28, 2007.

Corporate Voices for Working Families survey (July-August 2004).  Cited in Greenberg 2007. 

Center on Budget and Policy Priorities, The Impact of State Income Taxes on Low-income Families in 2006, http://www.cbpp.org/3-27-07sfp.htm, 2006.

Federation of Tax Administrators, 2006 State Tax Collections by Source, http://www.taxadmin.org/fta/rate/06taxdis.html,