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Addressing “Income Inequality” – How to Help the Poor and Reward Employment

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March 10, 2015

A phrase increasingly used to describe the financial difficulties of lower- and middle-income Americans is “income inequality.” 

Between 2000 and 2014, weekly wages fell 3.7 percent, adjusted for inflation, among workers in the lowest tenth of earnings levels but rose 9.7 percent among people near the top of earnings, according to a Pew Research Center analysis of Bureau of Labor Statistics data.  Other reports examining total income, not just wages, reveal a growing gap between rich and poor, in part due to the surging stock market.  Underscoring the problem is a stubbornly high poverty rate, with California’s, by one measure, the worst in the nation. 

But there are some key questions that must be answered in order to determine the best way to strengthen family financial stability.

First, is it best to focus on “income inequality” or “equal opportunity”? 

Second, is more redistribution of income through social programs the answer, or generating more job opportunities for people to support themselves? 

Church teachings provide a good guidepost for answering these questions.

The moral test of any society, Catholic social teaching says, is how it treats its most vulnerable members, including the poor. 

However, the Church has also made clear that individuals are responsible to use their talents and energies and should not have others do for them what they can do for themselves. 

Pope Pius XI in Quadragesimo anno said, "It is a fundamental principle of social philosophy, fixed and unchangeable, that one should not withdraw from individuals and commit to the community what they can accomplish by their own enterprise and/or industry."  

St. Pope John Paul II extolled work as an important aspect of the human vocation in Laborem exercens.  It is through work that we achieve fulfillment, he said.  He spoke of the “virtue of industriousness” to contribute to the common good.  

In Caritas in Veritate, Pope Benedict XVI wrote that, “Being out of work or dependent on public or private assistance for a prolonged period undermines the freedom and creativity of the person and his family and social relationships,” causing “psychological and spiritual suffering.”

In short, Church teaching calls for both the duty to help the poor but also the duty to help ourselves.

Therefore, we must focus not just on income level, but on job opportunities.

In fact, Catholic social teaching says that not only is work the preferred way of caring for oneself and one's family, but also that government should take steps to strengthen opportunities to do so.

One solution that both helps the poor and rewards employment is a proposed state tax break for low-wage earners based on a successful federal model.

The federal Earned Income Tax Credit (EITC), enacted in 1975, was designed to help low-and moderate-income working people escape poverty and stay employed.  It allows a refundable tax credit for certain low-income individuals who work and meet other requirements.  Supported by President Ronald Reagan, EITC has gained bipartisan support for its effectiveness.

Twenty-five states now provide an additional state EITC, but not California. This year, however, that could change. 

Assembly Bill 43, authored by Assemblyman Mark Stone (D-Monterey Bay), would create a state EITC for families already eligible for the federal program.  The purpose is to “lift vulnerable low-wage workers and their families out of poverty,” said Stone.

Under the federal EITC, credits can range from $496 for a single working individual earning $14,590, to a credit of $5,460 for working parents with two children earning $49,186, according to the National Conference of State Legislatures.  

In 2013, there were more than 3 million households that received the federal EITC in California, who received an average credit of $2,373. 

If AB 43 passes, many of these low-wage workers would be eligible for the state credit as well, according to Stone’s office.  With this credit, it estimates that 178,000 low earners in California would be lifted above the federal poverty threshold.  Senate Bill 38, a counterpart measure, authored by Senator Carol Liu (D- La Cañada Flintridge), has also been introduced.

The EITC is one way of helping financially struggling Californians while encouraging employment.  It is one way to address “income inequality” with a counterbalancing attention to the dignity of having a job.