Connecticut has just begun a seven-year program to ease the tax burden on its elderly, a process that will provide nearly $170 million in annual relief by 2025.

But much of that relief is targeted at seniors with pensions and annuities —  benefits that are increasingly less common for low- and middle-income residents, particularly minorities.

At the same time, lawmakers have chipped away at other tax credits for the poor and middle class and imposed new burdens on this income group, such as the sales tax surcharge on prepared meals and a fee on plastic bags.

It appears that in their push to make Connecticut a more attractive place to retire, lawmakers also inadvertently worsened the inequality gap in a state already known for its extremes of income wealth.

“We seem to be schizophrenic about this,” said University of Connecticut economist Fred Carstensen. “All of this tax stuff in Connecticut is done in silos. It just amazes me there is no coordination. You don’t move to Florida just because you’re going to pay somewhat less in state taxes down there.”

Carstensen said these policy choices likely will push more Connecticut residents toward poverty than lead additional seniors to financial comfort. But legislators said they did their best in tough fiscal times as they tried not to overburden the most vulnerable while simultaneously addressing an issue many officials fear: the exodus of Connecticut retirees.

“We seem to be schizophrenic about this. All of this tax stuff in Connecticut is done in silos. It just amazes me there is no coordination. You don’t move to Florida just because you’re going to pay somewhat less in state taxes down there.”

University of Connecticut Economist Fred Carstensen

“We’re trying to strike a delicate balance and meet two goals that are both a priority,” said Rep. Jason Rojas, D-East Hartford, co-chairman of the legislature’s tax-writing finance committee.

“I don’t think we look at things holistically very often, but the idea was to entice those who work here to retire here,” said Senate Minority Leader Len Fasano, R-North Haven. “If they’re staying here, they’re buying groceries here, going to stores here and paying taxes here.”

University of Connecticut economist Fred Carstensen Ryan Caron King / Connecticut Public Radio

Regardless of whether legislative policy-making is schizophrenic, lawmakers rarely find bipartisan unity when it comes to tax laws.

But after a nine-month-long battle to craft a new, state budget in 2017, Democrats and Republicans united in November of that year to adopt a two-year plan.

After years of deficits and a sluggish recovery from the last recession, Connecticut finally was seeing signs of economic growth and rising tax receipts in the state’s coffers.

And one of the few things both parties insisted upon in that plan was tax relief for the elderly.

Long-planned state income tax breaks for retired military personnel and teachers went forward as planned, but the primary relief for seniors was aimed at Social Security, pension and annuity income.

Connecticut already had exempted Social Security from the state income tax if a retiree’s total annual income was less than $50,000, or if a retired couple’s was less than $60,000. And taxpayers with incomes greater than these limits receive a 75% exemption.

Starting with tax returns filed this year, these limits were raised to $75,000 and $100,000, respectively.

The second tax break, which would go into effect between 2019 and 2025, would phase out state income taxes on pensions and annuities for retirees with overall income less than $75,000, and for couples with less than $100,000.

Sen. Len Fasano. mark Pazniokas / ctmirror.org

By 2025, according to state analysts, elderly residents who qualify for these breaks will save a collective $166 million per year.

And if these income limits of $75,000 and $100,000 seem modest, consider this: The average Social Security benefit in Connecticut is about $1,550 per month or roughly $18,600 per year.

And, according to the Pension Rights Center, the median pension in 2016 for adults over age 65 was $9,262 for those who retired from the private sector  and $17,576 for those who worked in state and local government.

Providing tax relief for retirees earning more than $75,000 per year generally targets either those with significant retirement benefits. or those who must still to work to make ends meet.

Connecticut is hardly alone in its passage of tax policies that favor wealthy seniors.

An analysis released this past summer by the Center on Budget and Policy Priorities, a Washington, D.C.-based fiscal think-tank, warned that states, in general, send a “large share” of their elderly-focused tax breaks to high-income seniors who need them the least.

“In particular, exemptions for retirement income such as pensions benefit those higher up the income scale more,” CBPP analyst Elizabeth C. McNichol wrote. “As a result, these state policies favor those fortunate enough to receive pensions or annuities — either through a defined benefit plan or a contribution-based plan like a 401(k) — and whose jobs pay enough for them to save for retirement.”

McNichol added that “they also favor those who do not need to continue to work past the traditional retirement age in order to support themselves and their families.”

The center’s analysis found that Connecticut’s tax system was relatively favorable to seniors compared with most other states and that was before the state’s new tax cuts took effect.

“I don’t think we look at things holistically very often, but the idea was to entice those who work here to retire here. If they’re staying here, they’re buying groceries here, going to stores here and paying taxes here.”

Senate Minority Leader Len Fasano

Connecticut has long been a land of sharp contrasts when it comes to income and wealth.

Since the last recession, inequality in Connecticut has not been a simple case of hedge fund principals reaping rewards that dwarf a still-prosperous middle class. Rather, only the richest of Connecticut’s most affluent households, on average, have improved their standing.

The CBPP study warned that tax breaks aimed at seniors regardless of income can reinforce and exacerbate inequality along racial lines.

“Many black and Hispanic families have faced long-standing employment and housing discrimination that have made it difficult to build savings for each generation and invest in the future of the next,” the study states. “People of color are also less likely to be covered by a defined benefit pension plan and are much less likely to have retirement savings than white households of the same age and income.”

Still, lawmakers here say the importance of encouraging more retirees to stay in Connecticut also can’t be understated. And the issue of income migration out of Connecticut has been a subject of debate at the Capitol for more than a decade.

U.S. Census data shows that Connecticut, and most other rich states, have lost income via migration throughout the past decades — yet still remain in the top tier for wealth. Similarly, those states with the lowest incomes per capita gain income via migration almost ever year — yet remain the poorest.

An analysis published in 2016 in the American Sociological Review concluded the wealthy generally are “embedded elites” and not “transitory millionaires.” It found the wealthy are more likely to be married, have children, and to own their own homes and businesses — all impediments to moving for tax purposes.

But retirees presumably don’t have to worry about business and their children likely are grown and independent.

In addition, a small sample size of data shows income migration out of Connecticut could be accelerating following major state tax hikes in 2011 and 2015.

Rep. Jason Rojas, D-East Hartford Jacqueline Rabe Thomas / CTMirror.org

John Erlingheuser, advocacy director for the Connecticut AARP, echoed the competing concerns and balancing act cited by Rojas.

Erlingheuser noted that seniors who want to remain here face one of the highest costs of living in the nation. Most survive on fixed incomes and face sharply rising health care expenses.

But he added “we definitely support equitable and cost-effective ways to target tax relief to low and moderate-income wage-earners.”

Connecticut officials, though, have struggled to provide tax relief to any groups over the past decade as massive pension debt — accumulated over more than seven decades — has joined with a sluggish economic recovery to take a hefty toll on state finances.

“It’s a gigantic anchor around our neck,” Rojas said, adding he believes most legislators would like to expand overall tax relief for seniors and add targeted relief for the poorest elderly residents. “We’ve made valiant attempts to address these things and try to keep our state moving in the right direction.”

But even when the 2017 tax cuts for seniors were enacted, legislators gave with one hand and took back with the other.

At its peak in 2011, the state income tax credit that helps offset property taxes paid by residents of all ages returned $380 million to low- and middle-income residents.

But a credit which once topped out at $500 is down to $200, and eligibility rules have been tightened considerably. It now returns just $50 million to taxpayers.

Similarly, a state earned income tax credit used to help the state’s poorest income tax filers was slashed in 2017 from 30% of the federal EITC to 23%.

“The EITC is enormously beneficial” when it comes to helping those most in need, Carstensen said, adding that every $1 the state refunds to a poor household reduces its need, on average, for 87 cents worth of government assistance.

We seem to be so worried about high-income individuals moving out of this state,” Carstensen added, “but we have bigger issues that need to be addressed.”

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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15 Comments

  1. Our decision to leave Ct was based on Ct’s inability to cut spending instead of Lamont new sreams of revenue.excessive taxation,the high cost of utilities etc.property taxes are threw the roof etc.We worked hard for our money took chances investing for our future and now in our golden years Ct takes more of it.We added it up and we have an approx 9 thousand difference in living exspence from Ct to SC.We hated to leave Ct but glad we did!

  2. The concern is that the legislature will opt out of these retiree reforms for the sake of more tax revenue to pay for state employee pensions. Retiree flight out of state is a very real deal.

  3. I’m sorry. Prof Carstensen is too far removed from this topic to be objective. He does not, and will not realize the financial challenges many elderly seniors must deal with in this state. These seniors do not benefit from a generous lifetime pension and free healthcare funded by taxpayers. Instead many of them must fend for themselves on a maximum Social Security Benefit of $34,000 or less, and whatever a %4 investment rate of return will generate on their limited savings. If they do have a pension, it is more along the lines of $10,000 to $20,000 per year, and not the $60,000 to $150,000 many State Employees will receive. Additionally, these seniors must also pay exceptionally high property, sales, gas and utility costs. As one of these Seniors that has lived and worked in Connecticut my entire life, and contributed quite generously to both local and state tax roles. I am insulted and offended by his position that it is too generous. Maybe the Prof doesn’t realize all retirees in this state didn’t work in the brokerage industry or live in Greenwich.

    1. John, well stated. Prof. Carstensen gets a 173K salary from UCONN (Public record) and will get a pension whenever he retires that will allow him to stay in CT. Easy for Prof. Carstensen to make such broad statements.

  4. I’ll start with the comment that taxation on Social Security benefits at any level by any governmental agency is nothing short of criminal. It was the individuals taxes coupled with his or her employers who have created this income stream. Taxes on Social Security is equivalent to double taxation! Regarding reduction of taxes on pensions etc., this was necessary to try to prevent retirees from leaving the state and thus lowering tax revenues. Once in awhile the Legislature does get something right. This is one of those occasions.

  5. One idea that was not brought up is that grandchildren are keeping many seniors in CT. Giving breaks on taxes then going after every other thing that people do is not surprising. Politicians can point out the they gave tax breaks in one hand while saying nothing about the other fee increases, licenses increases, increase in food and medicine taxes. The second point is the young are also moving out of state at an alarming rate also.

  6. … according to the Pension Rights Center, the median pension in 2016 for adults over age 65 was $9,262 for those who retired from the private sector and $17,576 for those who worked in state and local government.

    What is wrong with these numbers??

    1. Not considering other sources of income, retirees in CT are poor, whether they worked for the public or private sector. CT is a high cost of ;living state.
      Don’t forget that the median is the half-way point in a list. Half the people counted have lower pension incomes.

  7. Consider the implications of this comment:
    “The EITC is enormously beneficial” when it comes to helping those most in need, Carstensen said, adding that every $1 the state refunds to a poor household reduces its need, on average, for 87 cents worth of government assistance.
    [End quote]
    So $1 the state “refunds” to poor households provides only a $0.13 net benefit to the household.
    The state might find a more cost-effective way to help its poorest households.

  8. Keeping retirees in the state has another advantage: those who aren’t working are spending, but not occupying one of the limited number of jobs available.
    As discussed below, most pension recipients aren’t wealthy. Helping them stay economically is beneficial. I’m not sure why the author and some people quoted wanted to focus on CT’s (few but deep) pockets of wealth.

  9. If you’re heading into retirement in Connecticut, consider the following:

    1. Our state is routinely ranked among the worst states to retire in by many online articles I read.
    2. The bombay doors have opened on the state debt bomb which is hurtling toward taxpayers to pay for the promised, unfunded free healthcare and rich pensions for state union retirees.
    3. Nursing home care in Connecticut at over $500/day is among the top in the nation.
    4. Democrats have a stranglehold on the major cities and in Hartford. The opposition party is an endangered species.
    5. Democrats protect residents who are here illegally and shower them with lots of social programs that are paid by other people’s (taxpayer) money.
    6. Our state budgets are now routinely bleeding billions in red ink, with new and exciting ways to close the gap each year (tolls anyone? See # 2 above).
    6. Free tuition for the poor at UCONN is coming, partially paid for…..wait for it…. Connecticut taxpayers.

    What on earth could possibly go wrong with a plan to retire in the state of steady tax and spend habits?

  10. Carstensen should just be quiet, and tend to his teaching – he sure could use a muzzle.

    Seniors have been in need of relief for years now, and at last are provided some relief. It isn’t right when seniors have spent the better part of their lives paying off homes, that they can no longer afford to live in due to excessive property taxes – the direct result of having to provide for undocumented immigrants and all their related costs – particularly education and health care.

    He points to total nonsense, such as additional costs for plastic bags and pre-prepared foods etc, both expenses that are totally controllable. He makes a blind assumption that “people are not leaving to pay a little bit less tax elsewhere” – oh really ? They sure as heck are, and have been fed up for way too long with the high living costs, and exorbitant taxation.

    I don’t recall electing Carstensen to any kind of office to opine on how seniors should or should not be treated. If you are so concerned, no one is preventing you from donating.

  11. CT wants retirees because they can take their money without providing jobs. This tax “solution” offsets the underfunded public sector pensions by giving tax breaks to beneficiaries of underfunded pensions. Classic CT Ponzi scheme. Public sector workers must be one hell of a voting block, because that’s all CT politicians have ever worked for. Kids and grandkids are the only thing keeping me here, and I may still have to move. If you are not bound to CT, you really should get out now.

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