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Rich-Poor Divide Is Larger, But Does That Make The Poor Poorer?

By Dan Haar

November 15, 2012

When Greenwich billionaire Edward Lampert moved to Florida earlier this year, did you feel better off?

That question is at the heart of a report out Thursday that shows Connecticut went from being one of the states with the highest income equality in the ’70s, to one of the most unequal states.

The report by the Connecticut Association for Human Services and Connecticut Voices for Children says:

“In 1977-79, the gap between the richest fifth and the middle fifth of families in Connecticut was relatively low, ranking 42nd among all states, but the state ranked 7th highest in inequality by 2005-07. Similarly, the gap between the richest and poorest fifth of households is now the 3rd worst in the country, up from 46th.”

Worse than that, more recent data based on tax returns shows that Connecticut’s top 1 percent earned an average of $766,000 a year, not including capital gains — and the gap between that group and the 95th percentile level, $225,000, is growing rapidly.

“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 change has been drastic,” the report says.

By itself, inequality is not a wonderful thing but it’s not so bad if the presence of the rich signals prosperity across the board. Overall prosperity as measured by buying power, and not equality, is what matters most. The authors of the report apparently disagree.

It seems to me we were all worse off when Lampert, who controls Sears and Kmart, shopped for a different state and took part of his hedge fund with him. But our equality measure got better the moment his moving truck crossed into Rye, N.Y. on I-95.

Regardless, the underlying point is clear in the report, and in countless other measures. The poor in Connecticut, and much (but not all) of the middle class, are not keeping up, even with where they were a few years ago, let alone with Lampert’s pals who are still here.

For Labor Day this year, I looked at the Voices report showing that wages for the top 10 percent of earners rose faster between 2006 and 2011 than wages for the middle-earners, which rose faster than the wages for the poor. Similar conclusions.

CAHS and Voices, as the nonprofit groups are known, are pushing for a minimum wage indexed to inflation; a tax system that relies more on progressive income taxes and less on property and sales taxes, which hit poorer households harder; “shoring up” the state’s unemployment fund; and added support for programs such as the earned income tax credit, which started in Connecticut last year after years of foot-dragging in the legislature.

Those policies can help, but no government actions can fully address the simple fact that work has been devalued in our economy, compared with capital and ideas. That’s why the top earners have pulled apart from the rest of us, and although they may have earned their millions honestly by investing and coming up with better mousetraps, the skewed pay system is hurting everyone.

The empire is collapsing not because the 47 percent want handouts, but because the ample overall income that’s being earned is not finding its way into the hands of the middle 20 percent of households. That’s due to the changing morality around pay, more than global competition, more than any failure of government. And income inequality is a sign of it, not a cause.