Connecticut is home to some of the wealthiest fund managers, who are getting a 19.6 percent break on their federal taxes. This lucrative loophole in our tax code is reserved just for a special class of millionaire and billionaire financiers, who gobble up inordinate amounts of wealth, and indirectly fuel poverty in places like Bridgeport and Puerto Rico by siphoning wealth out of local economies.
Still, financiers continue to receive preferential treatment through subsidies and tax avoidance with little return on investment for Connecticut.
The fact is that Connecticut’s economy is over-reliant on the finance industry. It’s time to recognize that this industry does not support the growth in our state or our country the way it used to, and certainly not enough to justify the special privileges they receive, from tax breaks, to subsidies, to low-cost loans.
“According to a study from the Roosevelt Institute, every dollar of earnings or borrowing used to be associated with a 40-cent increase in investment. Since the 1980s, though, less than 10 cents of each earned or borrowed dollar is invested. This means fewer jobs created and more money winding up as shareholders’ profits.” This industry actually weakens job growth, while at the same time, many hedge fund and private equity owners invest in policies that trash our planet, and undermine our local economies (most notably in Puerto Rico recently, but also in municipalities all over the country).
Year after year, the state has experienced routine budget shortfalls, and has cut the programs that low-income and middle-class families rely on. Our budget was made lean long ago, but an unwillingness to hold the wealthiest taxpayers in Connecticut accountable for their fair share contributes both to these budget problems, and to the distribution of wealth upwards.
Income and wealth inequality in Connecticut is grotesque, to put it mildly. The state rankings for inequality vary every year, but Connecticut is consistently ranked in the top five. We have the highest threshold for families in the 1 percent, at an individual income of $677,608, and that top 1 percent accumulated 63.9 percent of all income growth between 1979 and 2007. Fairfield County’s rate of inequality is ranked just below Guatemala’s, according to Bloomberg Business.
As long as we are unwilling to use the strengths that our state has to raise revenue, we’ll continue to be forced into making false choices – state employees vs. taxpayers, poor cities vs. middle class suburbs, schools vs. infrastructure, etc.
This year, workers are facing absurd, politically toxic proposals that would badly damage our school systems, lead to massive, regressive property tax increases, and take money right out of the pockets of hardworking low income and middle class families — or lay them off by the thousands.
These are bad ideas, but we have only forced ourselves into such uncomfortable choices through an unwillingness to embrace sustainable solutions that truly leverage the obscene wealth that exists comfortably in small pockets of this state.
The fact is that as Connecticut’s finance industry grows wealthier every year, the state’s revenue growth remains flat, which underscores the need to pass legislation that would close the carried interest tax loophole. Doing so at the state level would raise badly-needed funds to the tune of $520-535 million per year.
With that money we can invest in schools, infrastructure, transportation, local cities and towns, our healthcare system – and save 4,200 jobs and the economies that rely on them.
Linday Farrell is Director of the Connecticut Working Families Party.