New math: From three brackets to eight complicates tax proposal

The big number is bad enough: $1.5 billion in new taxes to balance the coming year’s budget. But when the vast majority of state residents haven’t had to deal with anything more complicated than a two-tier levy, adding five new brackets to the state income tax is adding to the public consternation.

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Gov. Dannel P. Malloy is seeking nearly $880 million extra from the income tax next year. To get there, he’s taken a relatively simple system and proposed adding the five new rates, removing a popular credit to offset local property tax costs, and adding an earned income tax credit to help poor families save more.

So in addition to defending the overall budget, his administration is busy reminding people how the state income tax works.

The biggest source of confusion might be the mistaken belief that filers’ income taxes are calculated based solely on one rate. Actually, it’s a combination of rates, applied to various portions of the total income, that determine how much in taxes is owed.

“They don’t get the concept of a graduated income tax,” said Malloy, who begins the first of 17 Town Hall-style meetings with a stop Monday in Bridgeport.

Currently, Connecticut has just three rates: 3, 5 and 6.5 percent, all of which apply to earnings above certain thresholds (see chart). And no one taking home less than a million has to worry about that top rate.

There are relatively few adjustments. The big tax break is a credit of up to $500 for payment of local property taxes. That starts to phase out for couples earning more than $100,500, and is gone entirely once income reaches $190,500.

Malloy’s proposal eliminates the credit; all that remains is the phase-out schedule, which in his plan reduces the amount of income taxable at the lowest, 3 percent rate. So, for example, a couple earning $100,000 would have the first $20,000 of earnings taxed at 3 percent, but a couple earning $150,000 would pay the lowest rate only on the first $10,000.

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