Print

Connecticut's Income Disparity Shows Rapid Growth

By JANICE PODSADA | Courant Staff Writer

April 09, 2008

The income gap between Connecticut's richest and poorest families has grown at a faster pace in the last 20 years than any other state, according to a report issued today by Connecticut Voices for Children. During the same period, income disparity between the state's middle-income and richest families also grew at a faster pace than any other state, the advocacy group's report said.

"The rich get richer and the poor get poorer. We've been saying that for years," said Douglas Hall, the group's associate director of research. "But the top is not only pulling away from the poor, but middle-income families, as well."

While the state's wealthiest families have seen their real, inflation-adjusted income grow by 45 percent over 20 years, the state's middle-class families have enjoyed only a 5.1 percent increase.

The state's poorest families lost ground over the same time period. Their income declined by 17 percent, the largest drop of any state, the report said.

The increasing gap can be explained by several factors, including:

• The number of Fortune 500 companies headquartered here has risen. Twenty-six Fortune 500 companies and their highly paid executives call Connecticut home.

• The number of high earners has also increased in recent years; 2.4 percent of the state's population are millionaires, double the national rate. Their fortunes have also risen, fueled by the financial industry and Wall Street.

• The state has lost thousands of manufacturing jobs over the past 20 years.

With a possible recession looming, low-wage workers face the danger of falling farther behind in terms of real income, Hall said.

Some economists say that as the wealthiest families increase their wealth, they drive up the cost of essential goods. As prices rise, lower- and middle-income families must pay a greater share of their income to secure basic necessities.

However, other economists say the rich are in a consumer league of their own and their purchases don't necessarily drive up costs.

"The richest aren't buying what you and I are buying in terms of houses and cars," said Edward Deak, an economics professor at Fairfield University. "What happens at that level is immaterial."

Deak also pointed out that wealth statistics are skewed in Connecticut, where a small number of highly paid people work in the financial and hedge fund industries in Fairfield County. One benefit is that high-income earners tend to spend more in terms of absolute money.

"That's where you see growth in service employment — high-end restaurants, investment, personal services — that creates jobs. People make a decent wage from the expenditures of high-income earners," Deak said.

The percentage of people in Connecticut who are below the poverty line is probably less than in Michigan or Ohio, Deak said. In those states, he said, the economic disparity may not be as great, "but you have a larger number of people living on the economic margins."

The Voices For Children report suggested that wide income disparity can reduce a community's diversity.

"If you need a wage of $31 an hour to afford an apartment in the Stamford-Norwalk area, that's a challenge. We need people in Stamford who can be custodians to clean our schools. We can't geographically separate people," Hall said.

To close the gap, businesses, legislators and the wealthy must find both short- and long-term solutions, the report said. That includes increasing spending on schools and offering more scholarships."We need to ensure that smart kids that are coming out of families that maybe don't have so much money can achieve their full potential," Hall said.

Businesses should provide on-site child care, and the General Assembly needs to enact a state earned-income tax credit, the report said.

"We're the only state in New England that has an income tax and that doesn't have a state EITC — and we're the wealthiest state in the nation," Hall said. "Those who can afford to pay more should."

If Connecticut families earning $200,000 or more a year were taxed at 5.5 percent instead of the state's current 5 percent, the additional amount could easily support a state earned-income tax credit, Hall said.

The full report, "Pulling Apart in Connecticut: Trends in Family Income, Late 1980s," is available on the Connecticut Voices for Children website, www.ctkidslink.org.