Sen. Will Haskell, D-Wilton Ryan Caron King / WNPR
Sen. Will Haskell, D-Westport (file photo)

For years, minority Republicans in the General Assembly have fought to repeal Connecticut’s tax on inheritances of the wealthy.

This year they are not alone. A growing number of Democrats want the legislature — and new Gov. Ned Lamont — to repeal the tax.

And while Democrats from Connecticut’s affluent southwestern corner are calling for repeal, they aren’t the only Democrats open to the idea. Even some of the party’s most progressive members are willing to let go of the tax — provided repeal can be traded for some other budget initiative.

“It’s just a very short-sighted policy,” said freshman Sen. Alex Bergstein, a Greenwich Democrat, who argued the tax raises “a pittance” while “sending a signal that we don’t want high-income earners here.”

“At the end of the day, not all Democrats are the same,” said Sen. Will Haskell, D-Wilton, who also is serving in his first term. “It’s a big-tent party and I come from a district where, when I knocked on doors, I heard a lot from retirees telling me Connecticut simply is not the most affordable and exciting place to grow old.”

Sen. Alex Bergstein, D-Greenwich, (file photo)

At issue is a tax that currently applies to estate’s valued at $3.6 million or more. The exemption grows to $5.1 million in 2020, $7.1 million in 2021 and $9.1 million in 2022.

In 2023, Connecticut’s estate tax exemption would match the federal limit, which currently is about $11.4 million and is indexed annually for inflation. [Under current levels, the federal estate tax exemption would revert in 2026 to its 2017 level of about $5.5 million.]

But critics say the damage done by the Connecticut tax lies as much in perception as in reality.

“Why keep … an estate tax when we are one of only 13 states with it?” Bob Patricelli and Jim Smith co-chairs of the state Commission on Fiscal Stability and Economic Competitiveness, wrote in a November 2018 op-ed, adding that it has “no place in a pro-growth agenda.”

It’s debatable whether the tax raises “a pittance,” as described by Bergstein, but it is a relatively small piece of the General Fund’s $19 billion revenue schedule.

The tax is projected to raise just under $200 million this fiscal year, or 1 percent of the General Fund, according to the legislature’s nonpartisan Office of Fiscal Analysis.

Commission on Fiscal Stability and Economic Growth co-chairs Jim Smith, left, and Robert Patricelli (file photo) Keith M. Phaneuf / CTMirror.org file photo

Compared with the budget’s workhorses, estate tax proceeds equal 1/50th of the $9.7 billion the income tax produces and 1/22nd of the $4.3 billion sales tax stream.

It’s exceeded by taxes on corporations, cigarettes, public utilities, insurance companies and real estate conveyances.

And the annual take from the estate tax is projected to drop to $155 million next fiscal year and $134 million the year after that.

Still, it raises more than three times what Connecticut’s alcohol tax does.

Only 656 filers paid the estate tax last year — when the limit was $2.6 million, according to the state Department of Revenue Services. And that number is likely to shrink as the exemption level continues to rise.

So why should Connecticut give up more than $100 million in annual revenue to provide a tax break for a few hundred households?

Connecticut’s fiscal problems stem chiefly from public-sector pension and other retirement benefit programs that were under-funded for decades, Bergstein said. But as these problems place growing pressure on state finances, she said, it’s become increasingly commonplace to vilify the wealthy.

“We need to really see people as individuals and not as just ‘the rich,’” Bergstein said. 

Rep. Chris Davis of Ellington, ranking House Republican on the Finance, Revenue and Bonding Committee, says the tax is costing Connecticut tax receipts — and jobs.

Though Davis agrees with Bergstein and Haskell that some wealthy residents have left — and will continue to leave — the state to protest the estate tax, it also discourages family run businesses from locating here.

Rep. Chris Davis, R-Ellington, (file photo) Keith M. Phaneuf / CTMirror.org

This is particularly a problem for family farms, he said. “They are land-rich and cash-poor and many have to literally sell the farm to pay the tax man.”

Lamont, a Democrat, largely avoided the estate tax issue during the 2018 campaign while his Republican opponent, Bob Stefanowski, included its repeal on a controversial agenda that also included a gradual phase-out of the entire state income tax.

On Nov. 4  — two days before Election Day — Lamont attacked estate tax repeal as part of a larger repudiation of Stefanowski’s income tax scheme.

“Eliminating the income tax and the estate tax will be an enormous giveaway to the very wealthiest while slashing 60 percent of the revenues that fund education, health care and infrastructure investments,” Lamont’s campaign wrote.

But since then, some things have changed.

First, Democrats gained several seats in Fairfield County legislative districts.

Second, the state’s budget reserves, which stood at $200 million one year ago, now approach $1.2 billion — and threaten to top $2.1 billion by the fall.

And finally, some Democratic supporters of the estate tax have expressed a willingness to be flexible on repeal.

Rep. Jason Rojas, D-East Hartford (file photo) Keith M. Phaneuf / CTMirror.org

Rep. Jason Rojas, an East Hartford Democrat and co-chairman of the finance committee, said few in his community worry about estate taxes, but many worry about the sales tax. [Lamont has said he wants to broaden the sales tax base and remove some exemptions.]

Still, if repeal of the estate tax could come with other tax or spending changes that promote greater fairness, Rojas said, he will consider it.

“If we’re going to reshape Connecticut the way the governor is talking about then everybody is going to have to re-look at things they said on the campaign trail and the values they hold deeply,” he said. “Everybody’s going to have to do some soul-searching.”

Senate President Martin M. Looney, D-New Haven, also would not rule out repeal, saying he also would judge the issue only in the context of the entire state budget package.

Sal Luciano, head of the Connecticut AFL-CIO (file photo) ctmirror.org

Salvatore Luciano, president of the Connecticut AFL-CIO, said repeal should remain on the table if it could lead to a more progressive state income tax system being adopted before legislators adjourn in early June.

“I don’t know what will happen but maybe part of the grand bargain to have the wealthy pay a little more of their fair share (of the income tax) will be to get rid of the estate tax,” he said.

The Lamont administration isn’t offering any hints about whether it is considering a repeal of the estate tax, or even any further reductions.

Chris McClure, spokesman for the governor’s budget office, said “Governor Lamont’s revenue proposals will reflect his best efforts to promote economic growth, alleviate burdens, and create more market parity — while also balancing the budget for the biennium and putting the state on the best path forward into the next decade.”

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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5 Comments

  1. As a lawyer who handles estate and tax issues, I can tell you that when I advise people about staying in CT, I always have a conversation about the income tax and the estate tax. They are two major expenses you would not incur in Florida and other places. If you want to retain these people as they age, it would be a really good idea to take one of these two issues off the table.

  2. Mr. Phaneuf,
    Could you find out if there is a state that has figured out how to make sure the estate tax doesn’t hurt small farms?

    1. Laura, the small farm thing is a canard thrown up by certain politicians to hide that they were shilling for the rich. The federal exemption for a couple is now $22M and CT is moving to this same level. Really, think about it. What small farm in CT is worth $22M? Farmland in the US average $3K per acre. So for a farm to be taxable, it would have to be over 7K acres. In CT the value is about $11K or about 2,000 acres. That is a small farm? I don’t think there is even a farm in CT of 2K acres. Most of the new farms being started are 5-10 acres.

    2. 37 states have “figured it out” by not having an estate tax. Of the 13 states that still have estate taxes, 11 of them do not have gift taxes which helps folks “estate tax plan” before they die by gifting assets. Connecticut is one of only 2 states that have both gift and estate taxes.

  3. I could never understand why the federal/state Government has the right to tax the accumulated wealth of individuals at death after they were taxed all through their lives on the income they made. The only argument that I can see for this is if wealth is inherited. Eliminating the state estate tax threshold should be done.

    Now if Democrats want to soak the rich, they will find out how mobile these folks are and how counterproductive it will be to the state revenue. Since we get the Government we deserve, we may well see this happen, along with the continued fiscal death spiral of Connecticut.

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