Child advocacy group calls for major tax shift to close ‘highly unjust’ income, wealth gaps

Jacqueline Rabe Thomas :: CtMirror.org

Westport is one of the nation’s wealthiest towns, with mansions like this one overlooking the Long Island Sound. A new report from Connecticut Voices for Children recommends increasing income taxes and gift and estate taxes as part of a plan to shift up to $1.4 billion in tax burdens from lower-income households to the wealthier.

A leading child advocacy group challenged Connecticut officials Tuesday to shift up to $1.4 billion per year in state and local tax burdens from low- and middle-income households and onto the rich.

Connecticut Voices for Children used its annual budget forum to protest what it describes as a regressive tax system that steadily widens “highly unjust” gaps in wealth, education, health care and chances for economic success.

And the coronavirus pandemic is dramatically widening these disparities, particularly along racial lines, while undermining the state’s overall economy, advocates added.

An income tax surcharge on the wealthy, higher property taxes on expensive homes, and an expanded estate and gift tax all could be used to fuel new tax credits for low- and middle-income working households, the New Haven-based group argued.

Those recommendations also set Connecticut Voices sharply at odds with Gov. Ned Lamont, a Greenwich businessman who insists that redistributing state and municipal tax burdens would put Connecticut at a competitive disadvantage and prompt wealthy residents to flee across the borders.

‘The most pressing tax issue in Connecticut’

“It is possible and beneficial to pass a fair tax reform program that raises income and wealth taxes on the wealthy and also cuts taxes on the working and middle class,” Connecticut Voices officials wrote in their report prepared for the forum.

“The most pressing tax issue in Connecticut,” they added, “is not the overall tax burden but rather the regressive distribution of that burden, which contributes to economic injustice.”

Income and wealth inequality, both of which have been on the rise nationally for several decades, have reached their highest points since the mid-1940s — and Connecticut is home to some of the greatest extremes in the United States.

Citing U.S. Census and state tax data, Connecticut Voices analysts noted that the top 1% of earners here took home, on average, $3.1 million in 2018, almost 41 times that of the median household.

The median white household in Connecticut made $82,950 two years ago, compared to $47,856 and $45,730 for comparable Black and Hispanic families, respectively. The top 1% here earn nearly 65 times what the median Black household earns and 68 times that of the median Hispanic family.

But while the income gap seems daunting, even more intractable are the margins of wealth, which takes into account not just earnings but a household’s house, vehicles, stocks and other assets — as well as its debts.

Much of this wealth is inherited, not earned, giving those born without certain advantages little chance of amassing much.

The median household here was worth $115,400 in 2016, while the average estate taxed in 2016 — the most recent year available for this data — was worth $41.2 million, or almost 357 times more.

States generally collect less data about wealth disparities along racial lines. But Connecticut Voices analysts noted that while 10.3% of white households here are at zero or negative net worth, the same was true of 34.6% of Black and 51.4% of Latino families, respectively.

Income and wealth inequalities are compounded by a coronavirus pandemic-induced recession is unlike any other Connecticut and the nation have experienced in recent history, said Emily Byrne, Connecticut Voices’ executive director.

While the stock market has rebounded and surpassed the value it held prior to the pandemic, unemployment and certain other poverty metrics are at historic levels.

“This recovery needs solutions that protect people” rather than those that just stimulate the economy,” Byrne said.

For example, Byrne noted, nearly 12% of Connecticut residents lack reliable daily access to nutritious food and more than 27% are struggling to pay household expenses.

Expanding tax credits for the poor and middle class

These extremes in income and wealth also are driven by the regressive nature of state and municipal tax systems, meaning many of the taxes — sales, gasoline, property — don’t adjust rates based on the payer’s earnings, according to the report.

And while the Connecticut income tax — state government’s single-largest form of revenue — does have a graduated series of rates that exempt the poorest households from paying, critics say the percentages imposed on middle-income and wealthy households aren’t very different.

Connecticut Voices for Children Executive Director Emily Byrne

The regressiveness becomes more apparent when considering how tax burdens routinely are shifted. For example, a landlord often passes property tax costs onto renters. Gasoline stations recoup wholesale fuel tax charges by building that expense into the price charged to motorists.

The last state tax incidence analysis — which measures these shifts — was issued in December 2014 and found households making less than $48,000 annually effectively spend almost 24% of their earnings on state and municipal taxes. By comparison, a household earning $200,000 pays 10.5% while one earning slightly more than $2 million pays 6.5%.

To counter this imbalance, Connecticut Voices proposed expanding the earned income and property tax credits within the state income tax, and creating a new state child tax credit patterned after the federal relief program.

Together, these could pump as much as $1.4 billion into poor and middle-class households. And because of the income groups targeted, significant relief would be delivered to racial minorities.

To pay for this, analysts urged policymakers to consider an array of tax hikes on Connecticut’s wealthy.

Options include: 

• Establishing new “millionaire tax brackets” ranging from 7.99% to 12.7% within the income tax;
• Setting surcharges just on capital gains earnings; could raise another $160 million to $330 million.
• Taxing estates valued at $2 million or more and increasing the rates. The current system only taxes those worth more than $10 million.

The final revenue-raising proposal involves the so-called “mansion tax.” With a property tax rate of 1 or 2% on households worth $1.5 million or more, Connecticut could collect $330 million to $660 million annually.

Lamont: Redistributing tax burdens at state level is a ‘dumb idea’

A coalition of progressives from the legislature’s Democratic majority last summer pushed for tax, education, health care and housing reforms to accompany new police accountability measures crafted in response to the growing Black Lives Matter movement.

But moderates in the party —including Lamont — as well as Republican minorities in the House and Senate successfully worked to limit the reforms to public safety policies.

Despite pledging in his 2018 campaign to provide nearly $400 million per year in state income tax cuts to low- and moderate-income households, Lamont said he couldn’t afford that in his first budget — even though financial projections were slightly more favorable than than when he made the pledge in August 2018.

When the pledge was made, nonpartisan analysts were estimating state finances — during the first two-year budget of the next governor’s term — would run $4.6 billion in deficit unless adjustments were made. Yet when Lamont proposed that budget in February 2019, the potential shortfall had shrunk by about $350 million.

At the same time Lamont was reneging on, his administration successfully killed a progressive proposal to boost income tax rates on the capital gains of Connecticut’s richest households.

When asked during a CT Mirror podcast last week about state tax reform, Lamont said he wants to see it done only at the federal level.

“I think it’s really dumb to do it just by the state,” the governor said. “We already have some of the highest income tax rates in the country, and we pay a price for that.”

Eighteen states currently have higher top income tax rates than Connecticut does.

But when state and municipal tax burdens are compared to what the people paying them actually earn, it tells a different story.

Connecticut Voices analysts noted that the aggregate tax burden here in 2018 represented 15.8% of personal income, well below the national average of 18.8% — and lower than all but four states. 

And regionally, Connecticut’s top rate — 6.99% on singles making more than $500,000 per year and on couples topping $1 million — also is competitive. A couple earning the Connecticut median of $3.1 million per year would pay 8.82% in New York state and 8.97% in New Jersey.