Inflation has disproportionately affected lower-income Coloradans, increasing their spending on essential services at rates far higher than wealthier residents, according to a new analysis by two University of Colorado Denver professors.
The review of inflation and spending data, commissioned by the Bell Policy Center and released last week, shows how lower-income earners have weathered rising costs over the past two years with less flexibility to adjust their spending or lean on other forms of income to offset it. Simultaneously, essential spending on items like shelter or groceries has increased at higher rates for those Coloradans than their wealthier peers.
The report comes as state economic forecasters told legislators last month that they expect inflation to continue rising, constraining the state’s budget and raising the specter of a recession as federal regulators attempt to slow spending. While policymakers in Colorado and elsewhere haven’t had to address such significant inflationary pressures for decades, the report’s authors argue, the disproportionate impact of rising costs call for a targeted and nuanced approach that acknowledges that unequal burden.
“How households deal with inflation is all about tradeoffs, and the reality is that the tradeoffs are easier when you have more money, more income, more wealth,” said Todd Ely, the report’s co-author and the director of the Center for Local Government at CU Denver. “And so those tradeoffs for categories like groceries, utilities, housing — those are difficult tradeoffs to make just because there just aren’t ready substitutes. Gotta eat, gotta have shelter, health care. They’re not discretionary.”
While higher earners are spending more than lower-income Coloradans in real dollars, the impact on their overall income is less. Since September 2020, spending has increased 8.9% for lower-income Coloradans, defined by the report as those making 66% or below of local median income. Nearly half of that 8.9% increase is due to rising housing and grocery costs. Much of the rest is in other essential spending, like medical care and utilities.
For middle earners, spending has increased 3.7%, according to the report, and for the wealthier (making 150% or more of median income), it’s 2.2%.
“In contrast, inflation has been more painful for the median lower-income household in terms of
groceries and shelter,” the report’s authors found, “but more painful for the median upper-income household in terms of food away from home, household equipment, and recreation.”
Geoffrey Propheter, the report’s other author and Ely’s colleague at the university, said the findings didn’t surprise him. Even before he and Ely had completed their analysis, the fact that lower-income people would struggle more against inflation made theoretical sense: Higher earners have more economic flexibility, often with diversified income streams and, for those who are homeowners, immunity from fluctuations in rental costs.
Still, he said, the reality of what the data shows drives home the nuances layered into the broader policy discussion of inflation. He said it speaks to the need for more targeted — and inflation-aware — policies, like fees that are tethered to rising costs rather than flat rates. Inflation has remained relatively low for decades, the two professors said, and local and state-level elected officials haven’t had to grapple with how policies like sales tax rates impact lower-earners who are hit harder when prices rise.
Scott Wasserman, the president of Bell Policy, pointed to another finding of the report as further evidence of the pain felt further down the economic spectrum: Some middle-class Coloradans — homeowners with fixed-rate mortgages, for instance — are more insulated from some inflationary impacts than lower earners, who may have loans or debt that fluctuate as regulators adjust interest rates to address inflation.
Overall, Wasserman said, lower-income residents are getting “hammered” by inflation, and that has “huge policy implications” for state leaders and legislators. He argued that should include a conversation around refunds under the Taxpayer’s Bill of Rights, or TABOR, and whether they should be more targeted across the economic spectrum.
“Help people hardest hit. Ask people who have less of a hit to take their fair share,” he said. “It may sound obvious, but we want there to be economic analysis behind it.”
Source: Read Full Article