VOICES: Higher inflation hits low income workers harder

Richard Stock, director of the University of Dayton Business Research Group,

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Richard Stock, director of the University of Dayton Business Research Group,

The U.S. Bureau of Economic Analysis announced on May 27 that price index for personal consumption expenditures increased 6.3% from the year before in April — but by only 4.9% if food and energy expenditures were excluded. In the details, the price index for food expenditures went up by 10% and that for energy, (which includes gasoline and other energy goods and of electricity and gas services) by a whopping 30.4%. Separately, housing rent inflation hit 5.5% in May.

The differential impact of inflation on the lowest 20% of households by income is profound. It works like this: The lowest 20% of households (first quintile) spend 41.2% of their income on housing while the highest 20% of households (fifth quintile) only spend 31.6% of their income on housing. For food, the lowest 20% spend 14.8%, the and the highest 20% spend only 10.9% of their income on food. For both housing and food it’s a straight line decline in the percent of income spent as you move through from the lowest 20% of household by income through the middle income quintiles to the highest.

For transportation, it is a little different. The middle income quintiles spend the highest percent, but the differential stills exists between the lowest 20% of households by income and the highest 20%. On transportation, the lowest quintile spends 16.2% of their income, the second quintile spends 16.1%, the third quintile 18%, the fourth quintile 18.2% and then the highest quintile only 14.9%.

So what could local policy makers do that would effect this differential impact of inflation? Inflation is, after all, a global phenomenon tied to COVID supply disruptions exacerbated by war. But there is one thing the Ohio state legislature could do. The lowest 20% of households by income in Ohio pay 12.3% of their income in state and local taxes while the top 1% pay 6.5% of their income in state and local taxes. This is linked to a clever strategy of reducing the overall state income tax burden while retaining significant sales and excise taxes. The upshot is that while the state income tax collects a higher percent of the income of higher income households, this progressive aspect is overwhelmed by the regressive impact of the sales and excise taxes. Fundamentally, the state should reform its tax structure to increase the share of state taxes paid by the highest income households.

This brings us to the Ohio tax on gasoline which currently stands at 38.5 cents per gallon. Removing it would have an immediate effect on the budget of all Ohioans. Governor DeWine is disingenuous in his attempt to suggest this would hurt the highway system in the long term. There is nothing that prevents the governor and the state legislature in rolling back some of the income tax reductions on high income households and dedicating that to the highway fund. Not doing so is simply a continuation of the long term attack of the Ohio legislature on the ability of low income people to fend for themselves.

Richard Stock, PhD., is the Director of the University of Dayton Business Research Group.

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