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Report: Income Gap Widens

by | Nov 15, 2012 11:00am
() Comments | Commenting has expired
Posted to: The Economy, Equality

The gap between Connecticut’s wealthy and poor is the second largest in the nation behind only New York, according to a report   by Connecticut Voices for Children and the Connecticut Association for Human Services.

Comparing income over the past three decades with data broken up in 20-percent increments or “fifths,” the two nonprofit agencies discovered the gap between the richest and poorest in the state has grown and that it is the fastest growing gap among all states.

“What was once a place with prosperous middle and working classes who were within shouting distance of the upper class now stands as the epitome of rising inequality in America,” the report says. “The change has been drastic.”

In 1977-79, the gap between the richest and middle fifths was 42nd largest in the country — in only 8 states were the rich and middle closer together. In 2005-07, that gap had grown to 7th largest — the rich and middle were closer together in 43 other states. Similarly, while the gap between the richest and poorest fifths once ranked Connecticut among the least offenders at 46th in the country, the gap is now 3rd worst, according to the report which looked at both U.S. Census data and income data from the Department of Revenue Services and Internal Revenue Service.

Over the last few decades, the richest 1 percent have left behind not just the working and middle classes, but also the well-off. While incomes at the 95th to 99th percentiles — all solid six-figure earners — have enjoyed modest growth over the last two decades, top 1 percent incomes have soared and now constitute nearly 30 percent of all Connecticut adjusted gross income, the report found.

Adjusting for inflation, average incomes among those in the top fifth of households more than doubled from 1977-79 to 2005-07, from $107,554 to $226,237 — a gain of $118,682, or 110 percent. Those in the middle fifth saw their incomes rise $22,190, or 40 percent, while those in the bottom fifth lost $981, or 4 percent, over the 30-year period. Because of this large divergence in fortunes, the gap between the rich and the rest grew faster in Connecticut than in any other state.

According to 2010 data from the IRS, 95 percent of Connecticut taxpayers reported less than $239,112 in federal adjusted gross income. But among the final few percent of taxpayers, incomes increased almost exponentially. Those at the 95th percentile, reporting earnings in the low six figures annually, are closer in income to the poorest 20 percent than to the wealthiest 1 percent, who earn at least $717,603.

“This deep inequality threatens dire outcomes not just for those left behind, but for all of us,” Liz Dupont-Diehl, CAHS policy director, said. “It calls into doubt our idea that anyone can work hard and reach the middle class. Plenty of people are working hard and still can’t educate their children or send them to college — or provide for their families or build the American dream.”

But what can be done about it?

Admittedly the two groups say there are forces outside policymakers’ control, but they do offer a few suggestions for leveling the playing field such as increasing the minimum wage, shoring up the unemployment insurance system, and increasing income taxes on the top earners while making the entire tax system fairer and more progressive.

However, increasing income taxes on the state’s top earners hasn’t been a winning formula in the past.

Academics and economists have warned that Connecticut’s income tax is volatile and the state seems to be relying more on it today than it did when the tax was implemented in 1991.

Steven Lanza, an economist at the University of Connecticut, reported this summer that since its adoption in 1991, Connecticut’s personal income tax has become the state’s premier revenue source, accounting for 40 percent of the proceeds from all six tax categories in 2009. That’s up from just 8 percent in 1991, when Connecticut only taxed unearned income and the general sales tax reigned supreme, providing 43 percent of the state’s tax revenue.

Gov. Dannel P. Malloy, who increased income tax rates during his first year in office, has said recently that he does not intend to raise taxes this year to fix what is expected to be a $365 million deficit.

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(10) Archived Comments

posted by: robn | November 15, 2012  2:11pm

Are these figures household income or individual income? It would be interesting to compare both becuase my guess is that somewhere from the middle to the top, there’s only one spouse working and that’s a lot less stressful for a household.

posted by: saramerica | November 15, 2012  4:01pm


Robn - I have the national report and all households are ranked by income adjusted for household size. It doesn’t quite answer your question, but yes, I would imagine that in the top quintile even if both parents are working there is a nanny (if not more than one nanny from my 1st hand knowledge of how things work in some Fairfield County families). Life is very different for the wealthy than it is for the middle/lower class.

posted by: stellathecat | November 15, 2012  4:16pm

The chart makes it easy to visualize the enormous gap between the top 20% of the population and the bottom 80%. It makes one wonder how so many people can be opposed to recinding the Bush tax cuts on the top 20%. It also highlights the need for programs supporting those in the lower 20%. The idea of “I got mine and to heck with everyone else” doesn’t work for caring Americans.

posted by: ConnVoter | November 15, 2012  4:51pm

Stella, why would you look at this chart as some form of indicator that the government needs more of anyone’s money?

I see it as a sign that Connecticut’s overtaxation over the last 20+ years have really, really hurt the lower and middle classes by driving away jobs.  That has nothing to do with tax rates.

The rich will always figure out how to make money.  They’re usually smart enough to do so.  The poor and middle class generally just want jobs to get ahead in life and improve things for their families.  If the government continues to hammer their opportunities to get ahead, this chart will only look worse in five years.

posted by: THREEFIFTHS | November 15, 2012  7:07pm

Here is the answer.
States With the Most ‘One Percenters’

Only twenty metropolitan areas — New York, Los Angeles, Chicago, Washington, San Francisco, Boston, Houston, Philadelphia, Dallas, Miami, Atlanta, San Jose, Seattle, Minneapolis, San Diego, Detroit, Phoenix, Baltimore, Bridgeport (Fairfield County, Connecticut, is the center of the hedge fund industry and home to many corporate headquarters), and Denver — have at least 1 percent of all the nation’s very high-income households. Collectively those areas account for 56 percent of the highest-income households but for only 37 percent of all households.

posted by: ConnVoter | November 16, 2012  9:48am

Dan Haar of the Courant pegged it best: did your life improve when one of the richest men in the world left Greenwich for Miami this year?  Probably not, but our income inequality improved.

Income inequality is a symptom of problems and not something that needs to be addressed, or even could be addressed, by the government.  Instead, the government should stop fabricating barriers to employment and let citizens help themselves.

posted by: stellathecat | November 16, 2012  11:57am

I would agree with your thinking on the importance of getting Americans back to work..But I don’t think that upper 20% we are talking about is on the same page. They seem to have one motive and that is to stockpile more and more cash with minimum risk. They don’t like regulations that keep them from putting the economy at risk But a tax system that in no way addresses the growing income gap is fine with them. They are not helping us out of our jobless plight by creating jobs but are making things worse. Building cash reserves while cutting jobs is counter productive and not an approach that deserves a favorable tax policy

posted by: ConnVoter | November 16, 2012  1:28pm

Stella, that’s a red herring.  We should be focusing on elevating all levels of society with respect to each level and not compared to their neighbors.  If you make ten thousand times as much money as I do, that doesn’t stop me from bettering my life.  If the government chases jobs overseas, however, that hurts us all.  As Dan Haar pointed out, who cares if a guy in Greenwich is a multibillionaire?  So what?  He’s not stopping anyone in Bridgeport from improving his or her life.  The President and Governor need to understand that demonizing rich people may get them elected but won’t do anything to elevate the poor to the middle class or the middle class to the upper class.

posted by: JamesBronsdon | November 16, 2012  3:25pm

ConnVoter, it’s not the Pres and Gov who need to understand that demonizing rich people won’t do anything to elevate the poor to the middle class or the middle class to the upper class. It’s the naive, rich and poor alike, who need to know that.  The Pres and the Gov are only too happy to press that claim and rely on their naivete.
I agree with you, however, that income equality is not something that could be directly addressed by the government without negative consequences for the economy and individual liberty.  Enlightened tax policy, minimal government spending, and intelligent but light-handed regulation will benefit everyone.  But I suppose the left will say 10% positive benefits for the bottom 20%, and 20% positive benefits for the top 10% is unfair. They seem to prefer 10% negative consequences for the poor if it means 50% negative consequences for the rich.

posted by: stellathecat | November 16, 2012  5:41pm

Focusing on all levels is a mistake at this time. The top 20%,or for that matter proably the top 40% seem to be doing well. The government,both state and federal, should focus on the 60% that are in a real bind in this economy. That won’t stop any one on the top of the ladder. They can continue to be the engine that drives our society What the hedge fund guy in Greenwich earns is no concern of mine but it won’t hurt him to pay at a fairer tax rate. Creating jobs is a different issue.
Yet again the responsibility rest on the haves in concert with the governments help in developing industries.