Democratic legislators continued to challenge Gov. Ned Lamont Wednesday on who should bear the largest burden of balancing the next state budget, the wealthy or everyone else.
Leaders of the Finance, Revenue and Bonding Committee proposed a new half-penny sales tax surcharge as part of a larger plan that would funnel hundreds of millions of dollars into low income communities.
Lamont’s fellow Democrats on the finance panel also raised a bill last week that would impose a special income-tax surcharge on the investment earnings of Connecticut’s wealthiest households.
“We know that Connecticut is segregated in terms of poverty, but it is becoming increasingly segregated in terms of wealth,” said Sen. John Fonfara, D-Hartford, co-chairman of the finance committee. “And if we don’t step up we’re going to see increasing concentrations of both. I don’t want to live in that Connecticut and I’m hoping my colleagues in the legislature don’t want to either.”
The proposal is designed to act as an early-intervention system, Fonfara said, channeling dollars to communities slipping into economic disfunction. In other words, the need for public services in these communities is growing faster than the local economy can generate the resources to pay for them.
“Some communities are not capable of meeting their basic functions,” said Fonfara, who spearheaded the measure. “We know in Connecticut that having a local mill rate above 40 is like the canary in the coal mine. It’s a sign of instability. And too many towns are trending in the wrong direction.”
“We know that Connecticut is segregated in terms of poverty, but it is becoming increasingly segregated in terms of wealth. And if we don’t step up we’re going to see increasing concentrations of both. I don’t want to live in that Connecticut …”
Sen. John Fonfara, D-Hartford
The new measure would increase the sales tax rate from 6.35 percent to 6.85 percent, raising approximately $340 million next fiscal year, according to the latest nonpartisan analysts’ sales tax projections.
Most of the funds, approximately $315 million, would be distributed using a wealth-based formula. Preliminary estimates are that about 60 of Connecticut’s 169 cities and towns would share the $315 million.
The finance committee is still developing the rules that would govern how cities and towns could use the grants, but Fonfara said a heavy emphasis would be placed on encouraging economic growth.
For example, a poor community with a high property tax rate might use a portion of its grant to provide incentives to encourage a local company to expand and add jobs.
The remaining $25 million that would be generated annually by the sales tax hike would be made available to regional councils of government and other entities that provides services to multiple cities and towns.
One of the wealthiest states in the nation, Connecticut also is home to some of the deepest pockets of poverty. And there is a measurable gap, said Rep. Jason Rojas, D-East Hartford, the other co-chair of the finance panel, between the basic services these poor communities need and what they can afford.
“It’s been the challenge facing this state for decades and it’s largely been ignored,” Rojas said. “It also needs to be recognized that there are towns with far more capacity to provide services.”
One example of this enormous gap can be seen in Fairfield County.
Westport, one of Connecticut’s wealthiest communities, spends roughly double on a per capita basis on its municipal budget than does nearby Bridgeport.
More importantly, Westport’s grand list per capita is 10 times the size of Bridgeport’s.
Fairfield County’s affluent communities do pay the bulk of state income taxes.
According to the Department of Revenue Services, Westport paid $17,516 per capita in 2016 — fourth out of 169 cities and towns — while Bridgeport ranked last, at $1,029.
Lamont, a Greenwich millionaire, has resisted tax hikes centered primarily on Connecticut’s wealthiest households.
His budget plan would increase revenues by eliminating sales tax exemptions and levies on sugary drinks, plastic bags and vaping products.
These taxes are seen as more regressive, meaning the same rate is charged to all taxpayers, regardless of their personal wealth or poverty.
Sen. Will Haskell, D-Westport, a freshmen legislator, agrees with Lamont that now is not the time to raise income taxes, on earners of any level.
But Haskell said “I am open to a lot of progressive tax ideas,” adding he would be willing to review Fonfara and Rojas’ sales tax measure.
Last week the finance committee raised a bill that would add two percentage points to the income tax rate applied to capital gains earnings. But it only would be applied to single income tax filers whose overall income tops $500,000 per year, and to couples earning more than $1 million annually.
Lamont has consistently opposed this approach, arguing it would drive the rich out of state and weaken Connecticut’s economy, which has been on the rise.
Some legislators have speculated that new tax counter-proposals are designed to force a compromise from the governor in another area — his resolve not to tap the state’s fiscal reserves.
Lamont has said he doesn’t want to dip into these savings, preferring to leave them as a safeguard against the next economic downturn.
Connecticut has $1.2 billion in its rainy day fund and is projected to add as much as $1.4 billion after the current fiscal year ends on June 30.
And while this potential $2.6 billion reserve would be the largest in state history — both in terms of dollars and as a percent of annual operating costs — it still does not represent the full level recommended by Comptroller Kevin P. Lembo.
A reserve of $2.6 billion would be approximately 13.5 percent of the General Fund, falling just shy of the 15 percent mark endorsed by the comptroller.
Jeffrey Beckham, a spokesman for the governor’s budget office, said Wednesday only that the new sales tax proposal would be reviewed, adding that the administration may testify on the plan when the finance committee holds a public hearing on Monday.
The bill was inspired, in part, by a 2015 report from a senior economist with the Federal Reserve Bank of Boston.
The economist, Bo Zhao, developed a methodology measuring the disparity between a municipality’s needs, and its capacity to afford programs and services.
Zhao also testified in late 2015 before a state study panel, warning against the sharp differences in wealth among Connecticut communities, and its particular impact on non-education municipal services.
Despite an array of grants the state provides to communities, these have a “relatively limited” impact in terms of closing the gap between wealthy suburbs and urban centers, he said.
Zhao’s analysis also showed many wealthy Connecticut communities receiving state aid still would hold a tremendous advantage in providing services to residents even without those dollars.
So what these democrats are saying is that the poor communities that wasted money will be rewarded by raising the sales tax. Of course legislators from the large cities are suggesting this because they benefit while the rest of us foot the bill. This season will go done as the large tax increase in the history of CT. Between tolls, pot, gambling, drug and fee increases and license increases there will not be much left to tax in the future.
No thanks, paid family leave, tolls, expanding taxable items, towns raising taxes for teacher pensions and now this???? Enough is enough a long time ago…how about cutting expenses?
By any other name… This is just one more tax and spend redistribution scheme by CTs Democrats…
So tired of hearing the phrase “pay their fair share” when the top 5 percent of all taxpayers now pay well in excess of 80 Percent of all taxes.
Imagine CT without the Gold Coast. How would you plan to reinvigorate our severely depressed major cities such as Bridgeport, New Haven, Hartford, etc. Could CT’s economy ever resume to advance while its major cities remain severely depressed lacking good jobs, good schools, good housing ? Or are to we imagine CT’s future as one where our major cities remain depressed for ever and ever. With roughy 1/3rd of our State’s population destined to live well below State income levels. CT’s economic future depends on how we view our cities. Either perpetual “low contributors” to our economy or potential “new contributors”. And if the latter then funding is needed.
Meet the new legislature, same as the old. They just don’t understand. Raising taxes WILL lead to more people leaving the state. This has happened over and over again in and most recently in NYC – where they have lost almost 80k residents over the last 2 years.
People are more mobile than ever today, especially in the ‘work from home’ current economy. We need to make reasons for people to want to stay in this state, not flee from it.
In mid June my wife and I have a trip planned to Virginia, North Carolina and Tennessee to look at towns and cities to move to. We’ve given up on Connecticut.
Can someone please explain the logic of increasing the regressive sales tax to benefit the same people it hurts (at the expense of others, of course)?
This state has a fiscal death wish as evidenced by the idiocy coming out of Hartford on a daily basis.
Not a word about cuts in spending. But Mayor Harp welcomes more illegal people with “open arms”, the cost of which is adding to the deficit. No concrete plan to economize State finances has been presented by the Democrats in the face of multi billion dollar deficits. Just a lot of talk about “the rich” and income inequality which the press eats up and gets us no where.
I just read that 2015 study and no where does it say that income disparities between towns are bad and need to be corrected. It’s rather obvious that high wealth, low population towns are better off than high population, low income cities. The study was just a simple math exercise – a town with wealth of $100 million and 10,000 people is ten times more wealthy per capita than a city with $100 million in wealth but 100,000 people. If you want to increase per capita wealth in the big cities, the math again is simple: you have just two variable to work with – population and wealth, so you either need to reduce the number of people which increases the existing wealth per capita, or you need to bring in more income by business-friendly policies that bring in high-paying jobs. Playing the class warfare card by taking from wealthy towns and giving to the large cities doesn’t solve the long-term problem.
Another terrible idea brought to you by “leaders” of the Democrat party. If a distressed municipality can no longer pay its bills it needs to declare bankruptcy so it can completely restructure debt and unaffordable contracts. Bridgeport is a perfect example, it should have filled for bankruptcy 15 years ago. Same as Hartford (who were three weeks from bankruptcy until Gov. Malloy bailed them out) and New Haven – who without Yale would be insolvent. Enough is enough.
Most of CT’s 169 towns and cities have incomes below the State average given the overriding importance of the Gold Coast. Especially our major depressed cities where a significant portion of CT’s population resides. So the potential for income redistribution is virtually open ended. It might be preferable to “begin the discussion” with ending State Aid for Education for communities with per capita incomes 10, 15, or 20% above the State average. Or even requiring wealthier communities to fund their teacher pensions rather than lay the burden on the State.
So far we haven’t had much/any discussion on the causal reasons for CT’s decade long economic stagnation. Surely all can appreciate without reinvigorating our severely depressed major cities with targeted new funding we’re not going to make progress. How such funding would be utilized is subject to debate. But subsidizing new manufacturers to bring in industry and good jobs would be a good candidate.
I guess I’m confused… Sales taxes are usually considered a more ‘regressive’ tax, meaning disproportionate impact on the non-wealthy. Assuming my assumption is correct, doesn’t raising the sales tax burden the impoverished communities more? Services like LLBean and Amazon Prime, which ostensibly skirt local sales tax, don’t strike me as something that poorer communities rely on to get goods, not to the same extent as upper middle class & the wealthy
We already bail out fiscally inept cities enough. We should be reducing the amounts we simply hand over, not increasing them.
Sales tax disbursement to our lower income towns and cities Isn’t the best means of providing assistance. Targeted grants would be superior. But there’s no doubt that CT’s lower income towns and cities could use targeted assistance in encouraging new industry to locate and provide good jobs. Otherwise CT’s long depressed major cities will remain depressed. And that sharply reduces the chances of CT’s economy ever gaining a head of steam.
The recent Pew study reminded us that CT has a rather small middle class but very size able higher and lower income classes. Without targeted efforts to provide good jobs to our lower income towns and cities we’re not likely to advance. In an acknowledged high tax State that argument is a hard sell. But its economically the one that needs be made.
Well since most of the poor communities get the services. Let them pay for those great gov’t services. Maybe even the poor will wake up and realize these dems are not for them but for more gov’t workers and bloated pensions for themselves .How about fonfara donate his salary and written off miles to these oh so poor folks. I bet he lives just fine .
Just another bum raising taxes again. MORE WASTE. You are already diverting money to the poorer towns (Most of it probably doesn’t get to the poor people because it is given to the elected officials to handle it and you know how politicians handle other people’s money.)