Friday, February 22, 2013

The Sequester in Affluent Counties

The Sequester in Affluent Counties

Sequestration is probably going to kick in at the end of this month.  After writing about income inequality in North Carolina, I decided to look at areas that would simultaneously experience the greatest and least impact from sequester.  The large table at the end of this post covers areas inhabited by a lot of money managers and investment bankers: Santa Clara County, California, Fairfield County, Connecticut, and Westchester County, New York.  The table shows the median income by quintile and two measures of income inequality, the ratio of the top 5% to the bottom quintile and the gini coefficient.  I’ve included all the towns or cities in a county because it provides a more complete picture of the huge differences in wealth in relatively small geographic areas. 

Turn Around (2009)
First, look at the towns where the median income of the top 5% is at or near a million per household (in blue).  These are all areas chock full of venture capitalists, hedge fund managers, and investment bankers.  Obviously, many other well-to-do executives and entrepreneurs live in these areas.  It’s important to remember that we’re just looking at one year of household income.  Most of these households earn this kind of income year after year, which pulls them farther and farther away from the median.  For these folks and their less wealthy neighbors in the third, fourth, and top quintiles, the sequester will be a nuisance.  The lines at airport security may be longer at spring break.  Tax refunds may be delayed.  But life will go on as if the President and Congress had made a deal.

Second, spend some time at the bottom of each of the counties, especially the areas marked in red.  All four areas have a very high cost of living, so the folks in the bottom quintile in downtown San Jose, Bridgeport, or Peekskill face a daunting task just to make ends meet.  Even with Medicaid, food stamps, tax credits, and other benefits, life is already hard.  In fiscal 2013, sequestration places one-third of the burden on nondefense discretionary spending, which accounts for 17% of the federal budget.  As a result, sequester is going to hit a long list of programs, including rental assistance, mental health services, education for the poor, and mental health services.  It will also substantially lengthen the amount of time it takes for poor folks to qualify for assistance, and lengthen the time it takes to receive treatment at public hospitals and clinics.  

Finally, locate Scarsdale in the Westchester County section of the table (it’s in italics).  The median household has income of $240,000, and the bottom quintile earns nearly $72,000.  Go 7 ½ miles south on Route 22 to Mt. Vernon (in red in the bottom of the Westchester section of the table), and Scarsdale’s median makes you Mt. Vernon wealthy. Even Scarsdale “poor” nearly puts you in the fourth quintile in Mt. Vernon.  This disparity epitomizes the absurdity of the sequester, the fiscal cliff debate last December, and the debt ceiling crisis last year.  

The idea that we are going to put the burden of sequester on the less fortunate, because we can’t place any more burdens on the well-to-do, isn’t just bad economic policy.  It’s indecent.  Santa Clara, Fairfield, and Westchester are relatively small communities with a series of very privileged enclaves.  Unfortunately, the sequester reinforces the idea that the struggles of the poor, who live next door to the wealthy, aren’t their problem.

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