Report: Income Gap Widens
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.