After one alarming tax fairness study, CT is wary of launching a second
After hearing countless stories about how harshly Connecticut taxes its poor, state officials in 2013 committed to regularly conducting a fairness test.
But after a report the following year showed Connecticut’s poorest residents face four times the tax burden of its wealthiest, governors and legislators have repeatedly refused to look behind the curtain again.
Four times since then — and most recently last June — policymakers have postponed another so-called “tax incidence report.” The next analysis isn’t due until February 2022, and some advocates are skeptical it will happen again in this generation.
“It is just seen as irrelevant to the conversation … and that certainly is something we ought to be alarmed by,” said Rep. Josh Elliott, D-Hamden, an advocate for a biennial tax analysis and a member of the Finance, Revenue and Bonding Committee.
“We really need to know where our revenue is coming from, and from whom,” said Rep. Anne Hughes, D-Easton, co-chairwoman of the House Democratic Progressive Caucus. “Members in the [legislature] and even some of the public would rather not be reminded of this.”
“It is just seen as irrelevant to the conversation … and that certainly is something we ought to be alarmed by.”
Rep. Josh Elliott
Advocates for the study say the state’s poor could be losing ground faster than lawmakers realize if the state fails to examine tax fairness again.
“I think all families understand there are certain investments you make in order to climb the economic ladder — buying a house, investing in education,” said Yale Law School Professor Anika Singh Lemar, who teaches at the school’s community and economic development clinic. “If you’re living paycheck to paycheck, then you don’t get to make those investments.”
Connecticut first tried to identify this struggling group in 2013, when the General Assembly ordered the Department of Revenue Services to deliver the first tax incidence analysis by December 2014, and then prepare a follow-up every two years.
A tax incidence analysis studies which groups pay taxes and how those burdens are shifted. For example, renters effectively pay some or all of their landlords’ property taxes.
Gasoline distributors shift the entire cost of Connecticut’s 8.1% wholesale fuel tax onto local filling stations, which then pass it all onto motorists — who also pay a 25-cents-per-gallon retail tax.
Meg Wiehe, deputy executive director of the Institute on Taxation and Economic Policy, said Connecticut already is a land of “stagnating working-class incomes” and “extreme income and wealth inequality.”
At first glance, analysts often observe the state income tax is relatively progressive. A personal exemption and a property tax credit mean many households earning less than $35,000 per year pay little-to-no income taxes to the state.
But while the income tax is state government’s single-largest source of revenue, generating more than $9.6 billion last fiscal year, the property tax raises closer to $11 billion annually from all communities combined, according to the Connecticut Conference of Municipalities.
The property tax, as well as while the state’s second largest source of revenue — the sales tax — are “undeniably regressive,” Wiehe said at the Capitol on January 15th as part of Connecticut Voices’ annual budget forum.
“No tax legislation should be debated in the absence of the understanding of who pays. Who pays more, who pays less?”
Institute on Taxation and Economic Policy
That means the rates for these taxes don’t vary, regardless of the income of those that must pay them. It also means Connecticut “relies much more heavily on low- and middle-income families than the state’s richest residents to generate revenue,” Wiehe said.
The 2014 incidence analysis found that Connecticut’s state-and-local tax system hammers low- and middle-income people.
The poorest people in Connecticut in terms of adjusted gross income — about 725,000 filers earning up to $48,000 per year — effectively spent 23.6% of their pay on state and local taxes in 2011.
By comparison, the middle-class paid about 13%, while the top 10% of earners paid 10% and the top 1% paid about 7.5%.
“That’s not an accident,” Hughes said. “We need to look at the numbers and ask how does that happen, and are our taxes worsening that disparity?”
According to several nationally recognized policy think-tanks, things are getting worse.
Income inequality in the United States is at its most extreme since 1928, just before the stock market crash that launched the Great Depression. And New York and Connecticut spearhead that trend, with the wealthiest 1% of households in those two states earning more than 40 times the average annual income of the bottom 99%.
More importantly, Connecticut’s poor and middle-class are increasingly swamped with credit card, medical and student loan debts that drain their resources.
Ironically, while Connecticut Democrats have been more vocal than the GOP about the overtaxation of the poor, Democrats also have been the ones keeping the tax incidence analysis on ice.
Govs. Ned Lamont and Dannel P. Malloy — both fiscally moderate on the spectrum of state Democrats — signed the bills delaying the next study. Malloy approved measures in 2015, 2016 and 2017, while Lamont signed the delay last June.
In all instances but one, Democrats controlled both the House and Senate. In 2017, the Senate was split 18-18.
Leaders routinely cite the study’s cost — which is a fraction of a fraction of the state budget — as a the reason for the repeated delays.
The cost estimate for a biennial study is $375,000, or $187,500 per year — roughly 1/1000th of 1% of the budget’s General Fund.
Rep. Jason Rojas, D-East Hartford, who co-chairs the finance committee, on one hand said the cost is “minuscule,” but also insisted the price tag is the primary reason the study keeps being delayed.
“I don’t think anybody’s afraid of the information” in the analysis, Rojas said, adding he personally favors a biennial report. And while he would compromise on a study every three years, waiting seven years is too much.
“That’s a disservice to us and to the state,” he said.
Chris McClure, the spokesman for Lamont’s budget office, said “We agree that there is value in tax incidence studies, as the report issued in December 2014 was helpful in understanding our tax landscape.”
“Unfortunately, given the copious amounts of staff time and resources that are required to complete such a study, $375,000 to update our model, we have needed to prioritize other reports, studies, and projects,” he added.
Elliott says the cost argument against regular studies is weak and allows legislators and governors not to watch — and therefore not to stop — the ongoing slide of Connecticut’s poor and middle class.
A series of biennial reports, and not just one document rapidly becoming outdated, are necessary to inform officials’ decisions each year as they craft new state budgets, he said.
“What we need to see is not just a snapshot in time, but what the trajectory of these problems are,” he said.
Connecticut Voices proposed an overhaul of state taxes in January.
The nonprofit policy think-tank proposed two major state income tax relief efforts to pump $600 million annually into Connecticut’s middle class and working poor households.
To pay for this relief, Connecticut Voices recommended higher income tax rates on those earning more than $1 million annually — including a surcharge on investment income. It also recommended freezing the state’s tax on multi-million-dollar estates, which is scheduled to shrink over the next few years.
Lamont has consistently opposed raising taxes on the wealthy. The governor, other moderate Democrats and many Republicans argue this would drive Connecticut’s highest taxpayers to leave the state.
But Wiehe said Connecticut policymakers risk flying blind if they debate tax policy without regular, updated incidence analyses.
“No tax legislation should be debated in the absence of the understanding of who pays,” Wiehe said, “Who pays more, who pays less?”
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