Report: Growing chasm between state's richest, poorest

November 15, 2012 2:30 pm • Last Updated: November 16, 2012 6:18 pm

By By LEE HOWARD, Day Staff Writer

Connecticut, the Land of Steady Habits, has been steadily experiencing a widening chasm between rich and poor, a report released Thursday suggests.

"A state whose middle and working classes once stood closer to prosperity than almost anywhere in America has become one of its most unequal places," according to the report issued by the Connecticut Association for Human Services and Connecticut Voices for Children.

The report, "Pulling Apart: Connecticut Income Inequality 1977 to Present," noted that the state, once among the top five nationally in terms of having small income gaps between the richest fifth and poorest fifth of residents, now ranks as the third worst. On another inequality scale cited in the report, Connecticut ranks behind only New York state in income disparity.

"While Connecticut's richest have grown richer, many of their fellow residents are barely treading water," according to the report, based on a state-by-state analysis by the Center on Budget and Policy Priorities and the Economic Policy Institute. "Connecticut has seen working-class wages stagnate, and more of its residents live in poverty today than 50 years ago."

At the same time, the report said, the very wealthy are pulling away from the merely well-off. According to the report's analysis of tax return data from the Internal Revenue Service and the state Department of Revenue Services, income among the top 1 percent of Connecticut earners has soared to account for 28 percent of all individual income in the state, up from 17 percent two decades ago.

The top 1 percent earn about $766,000 a year, well above the the top 5 percent's average income of $225,000.

"The income of the near-rich is actually closer to that of the poorest fifth of households, who earn $17,000, than it is to the ... wealthiest Connecticut residents," according to a summary of the report.

The report doesn't spend much time analyzing why the income gap has widened, mentioning only "runaway growth in the financial sector" as one factor.

But economist Peter Gioia, vice president of the 10,000-member Connecticut Business and Industry Association, pointed to three factors: problems in the state's education system, a decline in the number of manufacturing jobs, and a propensity for the state to attract "some incredibly high-end jobs."

Gioia said he doesn't believe adding high earners to the state's employment base is anything but a net plus for Connecticut, opening up jobs in such areas as landscaping and limousine services, among many others.

"You want wealthy people. They pay a lot of taxes," he said.

Gioia said a better way to tackle the income gap is to improve the state's educational system so people on the lower rungs of the wage gap can employ increased skills to attain higher pay. Yet, he charged that Connecticut Voices for Children, a New Haven-based policy think tank, had not thrown its weight behind Gov. Dannel P. Malloy's plan to remake the state's educational system, something he says is critical to helping close the wage gap.

Another important consideration in analyzing why the wage gap exists, according to Gioia, is the disintegration of the state's manufacturing base, as many of these jobs have shifted overseas. Restoring good-paying manufacturing jobs that don't require a four-year education is part of what needs to happen to close gaps between upper-income residents and others, he said.

The report, released Thursday, however, offers other solutions, including raising and indexing the minimum wage, strengthening the state's unemployment system and reducing reliance on sales and property taxes, shifting the burden to income and estate levies.

Gioia challenged many of these recommendations, saying that increasing the minimum wage could have the unintended consequence of reducing the number of entry-level job opportunities because employers would no longer be able to invest in training workers that don't come with the necessary skills. He added that the state's unemployment insurance system needs to be bolstered, but that is hardly a solution to the wage gap.

"How do you create wealth by increasing unemployment (payouts)?" Gioia said. "You need to increase job opportunities."

He also disagreed with relying more on income taxes that can hit small business owners hard and have a negative effect on job creation.

Steve Lanza, an economist at the University of Connecticut and executive editor of The Connecticut Economy, agreed that minimum wage laws can throw up barriers for unskilled workers.

"It's not a real solution," Lanza said.

He also said large wage gaps may be one indicator of a stagnating economy, but he questioned whether statistics cited in the report are a true barometer of Connecticut income inequality.

The report apparently didn't take into account demographic changes, such as an aging population, as well as factors such as the number of exceptionally wealthy people in the state who skew numbers related to wage disparity.

"Connecticut's rate has historically been high not because poor folks are exceptionally worse off here in Connecticut than in other parts of the country — in fact, they're better off," Lanza said. "What the problem is, really, is that you have a few at the top that are just incredibly rich."

While Lanza sees the latest income gap report as taking a narrow view of the state's economy, policy analysts for the two groups that released the study see the growing disparity between rich and poor as a key barometer.

"Growing inequality is bad for families and our economic future," said Wade Gibson, senior policy fellow at Connecticut Voices for Children. The policy think tank has been fighting for expanded opportunities for the middle class.

"Our economy won't truly rebound without shared prosperity," added James Horan, executive director of the Hartford-based advocacy group Connecticut Association for Human Services, in a statement.

l.howard@theday.com