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To Have and
Have Not
State's economic
recovery obscures widening income gap
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Business New Haven
11/16/1998
By: Lori Green
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It's not merely a few stragglers who are simply bringing up the rear in the region's push toward greater economic well-being. A widening income gap is stagnating the incomes of more than 75 percent of all Americans - and a majority of Connecticut residents.
In spite of the expansion of the late 1990s, and the lowest unemployment rate in nearly three decades, most in the state are still jogging on an economic treadmill rather than gaining ground on the prosperity track.
“Nationally, from 1973-95, we've seen increasing income inequality,” says Fred
Carstensen, a professor of economics and director of the University of Connecticut Center for Economic Analysis. “During this period, the top 20-percent bracket has seen their income rise, and 60 percent saw their real income decline.”
This has been particularly true for non-college graduates, Carstensen, both nationally and in the state, as well as for children.
Overall the poverty rate in the state has risen from 9.4 percent in 1992 to 11.7 percent in 1996. (The U.S. Bureau of the Census poverty rate for 1996 was $8,165 annual income for individuals under age 65, scaling up to $16,036 for a family of four.)
In spite of its aggregate wealth, a recent Columbia University study cited Connecticut as having the highest rate of increase of children in poverty in the country.
But won't the riches of the rich trickle down to the low end of the socio-economic ladder?
Well, actually they sort of seep, and it can take long, long time. In the meantime, Connecticut houses four of the country's poorest cities: Hartford, New Haven, Bridgeport and Waterbury.
The state finds itself in a notably similar position to that of the U.S. as a whole. The U.S. occupies first place in recent United Nations ranking of the world's 17 top industrial nations both in per-capita income and in highest rate of poverty.
According to the “Connecticut Competitiveness Guide 1998,” a report issued last month by the Connecticut Policy & Economic Council (CPEC), Connecticut leads the nation with a 1997 per-capita personal income rate of $36,263, but hovers near the bottom for having among the highest business costs in the country.
For example, unemployment tax rate increases over the past five years resulted in the state dropping from 36th to 44th place in that cost index. The report also reveals that Connecticut's poverty rate and the percentage of residents without health insurance climbed steadily between 1992 and 1996.
This finding was confirmed in a study done by the Washington, D.C.-based Center for Budget & Policy Priorities (CBPP), which concluded that while the national poverty rate fell by almost a percentage point since 1992, the Connecticut rate has increased.
Notes Carstensen, “It is really regions rather than states that are best compared for competitiveness. Connecticut is far from a homogenous terrain in terms of economic vitality.
“The state on a comparative basis actually looks pretty good,” Carstensen explains. “Swiss Bank, for example, is not going to set up trading operations in New Mexico - it's going to go to Stamford. Pfizer chose the New London area for its development laboratories because of the attractiveness of the workforce and infrastructure in that region.”
But even if the regionalists are right, and statehood doesn't count for much in assessing the economic vigor of a given geographic area, there are cost impacts that businesses feel every day only because they've set up shop here.
Costs such as property taxes, energy prices and corporate income taxes still make the state as a whole one of the priciest locales for businesses in the country. This makes new tax regulations - such as the five-year forgiveness on new-equipment purchases which will take effect on January 1 - a move in the right direction.
Also, to the state's credit, levels of public-sector expenditures are slim when compared with those of most other states, according to research from the University of Connecticut.
Even as many businesses in the state continue to grow and create higher-paying jobs, household earnings across Connecticut have leveled off - at least for the time being.
James Stodder, an economist with the Lally School of Management & Technology at Rensselaer Polytechnic Institute at Hartford, reported in the winter 1998 issue of The Connecticut Economy that: “There has been a decline in income for a near majority of Connecticut residents. Real income for the state's median households declined between 1992 and 1996.”
Few disagree that before-tax income has become more unevenly distributed in the state during the 1990s. To narrow the gulf, some economists advocate reducing sales and gas taxes, which disproportionately burden the poor. HOW? Other analysts insist that across-the-board cuts in personal income taxes and business taxes are the only way to augment everyone's net worth.
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