NCPA - National Center for Policy Analysis

ENDING THE POOR TAX

July 26, 2006

Lower-income families in the United States tend to pay more for the same consumer products than families with higher incomes, says Matt Fellowes, author of a new study by the Brookings Institution.

For example:

  • Lower-income consumers pay an average of 2 percent more in interest for an auto loan than higher income consumers, and between $50 to over $1,000 more per year in higher premiums for auto insurance
  • Lower-income homeowners pay, on average, 1 percent point more than higher income households for their mortgage rate, and can pay as much as $300 more a year for home insurance.
  • Lower-income neighborhoods are 2.5 times more likely to have smaller grocery stores, which charge more for their products; of the identical food products sampled in the study, 67 percent were more expensive in smaller grocery stores than larger stores. 

But this problem is also a huge opportunity to push back against poverty, says Fellowes. Reducing costs of living by just one percent would amount to over $6.5 billion in new spending for lower-income families.  But to achieve this, he continues, several steps need to be taken:

  • Public and private leaders must take measures to bring down higher business costs that drive up prices for poor families.
  • New laws and more rigorous enforcement are needed to curb market abuses that gouge low income workers.
  • The public must invest in making lower income consumers the savviest shoppers in the marketplace, equipped with the know-how to spot and avoid bad deals and find the lowest possible prices.

Source: Matt Fellowes, "From Poverty, Opportunity: Putting the Market to Work for Lower Income Families," Brookings Institution, July 2006

 

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