Washington – Connecticut Commissioner of Revenue Services Kevin Sullivan says the House GOP tax bill “could provide some economic stimulus…for states like Connecticut,” but he also said the plan is “fundamentally flawed” and that many in the state would end up owing more in federal income taxes.
“Contrary to all the talk of a ‘middle-income tax cut,’ the plan actually represents a huge windfall to the wealthiest federal taxpayers and is truly regressive,” wrote Sullivan in a Nov. 8 letter to Rep. John Larson, D-1st District.
Sullivan said that in Connecticut, more than 75 percent of the proposed tax cut would go to the top 1 percent, who would pay 8.5 percent less tax, on average.
Sullivan also sees other key problems with the plan, which would shrink the number of tax brackets from seven to four, double the standard deduction and lower the top corporate rate from 35 to 20 percent. The House plans to vote on the tax bill this week.
Sullivan said a lower rate and increasing the size of the standard deduction won’t help high-cost states like Connecticut because the tax plan would end the deductibility of state and local income taxes and cap the deductibility of property taxes at $10,000.
Sullivan estimated the ending the deduction for state income tax would cost $8.7 billion “to mostly middle-income Connecticut taxpayers.”
Capping deductibility of the property tax would also hurt, Sullivan said, increasing federal taxes “for a significant proportion of Connecticut taxpayers who claim $4.9 billion” of tax relief through this break.
He also told Larson, who sits on the House Ways and Means Committee, a panel that approved the tax overhaul in a party-line vote last week, that lower income residents would be hurt, despite being able to claim a larger standard deduction, by raising the lowest tax bracket from 10 to 12 percent and eliminating the personal exemption, which currently is $4,050 for every person in a family.
Sullivan said the House plan’s elimination of the medical and dental deduction would be a “$1.6 billion hardship for Connecticut taxpayers at all levels who are out of work and have catastrophic medical costs,” and the end of the deduction for student loan interest would hurt young taxpayers and their families.
Sullivan’s criticisms run counter to GOP praise of the plan. Republican supporters say lowering the corporate tax rate and other breaks for small businesses will create new jobs and rev up the economy.
House Speaker Paul Ryan, R-Wis., a main champion of the overhaul, said, “There are people in Washington who want to keep things exactly as they are, broken, unfair and stacked against middle-income families.”
“But that’s just background noise,” he said. “Our plan means more money in your pocket, more take-home pay in your paycheck and more peace of mind in your life.”
He said the “typical family” would receive a $1,182 tax break under the House plan.
But the plan has been universally criticized by Democrats, who say it’s a giveaway to the rich at the expense of middle-class taxpayers.
Sullivan also knocked the bill because it would add $1.5 trillion to the deficit, resulting in the need to cut funding for programs like Medicaid “that are important to states like Connecticut.”
“Sadly, these and other significant issues of fiscal irresponsibility and tax unfairness seem to be of no concern in the partisan rush to pass the legislation before taxpayers see through the slogans and realize the costs,” Sullivan said.
He also said “glimpses” of what may be in the GOP Senate tax plan “suggest that it will only get worse.”
The Senate Finance Committee on Monday began to work through that chamber’s tax bill, which is similar to the House legislation but postpones the cut in the corporate rate for a year, does not allow any deduction for property taxes and restores the medical deduction.
An analysis released Monday by the Joint Committee on Taxation found the Senate bill would increase taxes in 2019 for 13.8 million households earning less than $200,000 a year.
The study found those earning between $75,000 and $200,000 would see the sharpest increase, an average of more than $500.
The joint committee also said that by 2025, 21.4 million households would have steeper tax bills.
President Donald Trump, who is on a trade trip to Asia, tweeted Monday that he would like additional changes in the Republican tax bills.
He urged Republicans to repeal the Affordable Care Act provision requiring most Americans to buy insurance or pay a penalty
That would result in billions of dollars in savings from federal subsidies that now go to people who buy insurance on state exchanges and qualify for such help.
Trump wants those savings to be used to cut the top individual income tax rate to 35 percent – it is now 39.5 percent in the House bill and 38.5 percent in the Senate bill — with “all the rest going to middle-income cuts.”