Mind the Gap

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Today’s economy is such that Wall Street millionaires must loosen their belts a few notches every week. Unemployment is at the lowest in decades. Times are good. What, me worry?

Actually, a little fretting might be in order. A recent report by the Independent Budget Office shows that the gap between the rich and poor in New York City is growing larger every year. The middle class, which has garnered slim pickings from Wall Street’s feast of riches, appears to be fleeing the city in search of an affordable lifestyle.

Analyzing a sample file of 118,000 tax returns filed between 1987 and 1997, the IBO discovered the middle class has declined continuously–from 63 percent of all filers in 1987 to little under 57 percent in 1997. At the same time, the number of poor filers–those with annual incomes of less than $10,000–rose steadily, from 13.4 percent in 1987 to 18.3 percent 10 years later.

The findings aren’t surprising; they confirm what many other reports have suggested. But because IBO analysts used tax return data, rather than the Census data most reports rely on, they were able to generate a much more accurate picture of the growth of the rich and super-rich.

The analysis also reveals that the city is overwhelmingly dependent on Wall Street. According to report author Michael Jacobs, 24 percent of the city’s tax revenue now comes from the personal income tax paid by downtown financiers.

This means a large fraction of the city’s fiscal base–and, as a consequence, its capacity to fund social services–depends on this volatile income stream. “We are skating on pretty thin ice,” says Mark Levitan of the Community Service Society, the social services policy group. “What happens if the stock market crashes?”

Among other causes, Jacobs blames the imbalance on the decline of middle-income jobs in the city. Levitan holds the inflationary price of affordable housing responsible. “A two-income family making $75,000 to $100,000 a year can actually live a middle class existence outside the city,” he says.

The rise in the number of poor filers does not necessarily mean a rise in poverty, Jacobs cautions–it’s more likely that more low-income people are filing tax returns than did 10 years ago, thanks to the new incentives provided by the Earned Income Tax Credit.