The ideas for carving up Connecticut’s surging budget surplus are flowing faster than the waters of the Long Island Sound after a nor’easter: Lower the sales tax. Eliminate the income tax on pensions. Increase the property tax credit. Pay down the state employee and teachers retirement pension debt. Cancel the surcharge on restaurant food. Bolster the unemployment insurance fund. Modify the property tax on vehicles. Pump up the Earned Income Tax Credit.
The outpouring of proposals is head-spinning but not surprising. This is an election year, when the offices of the governor and all 187 state legislators will be on the ballot. And what better way to encourage voters to blacken the circle next to their names than to put a little fast cash in their pockets.
As such, a tax cut (or cuts) of some sort is a near-certainty, made possible by the projected $1.48 billion surplus, compliments of federal Covid aid, a booming 2021 stock market and lower-than-anticipated state spending.
While the supporters of the above-mentioned ideas no doubt believe they have merit, the one tax proposal that would do more to restore Connecticut’s economic hegemony is reform of the state’s unfair, regressive, inefficient and onerous property tax. It accounts for a disproportionate 42% share of all state and local taxes. As a percentage of state and local revenue, Connecticut’s property tax revenue is the third highest in the nation at 25.4%, significantly higher than the national average of 16.6%.
Of the state’s potpourri of levies, the property tax is the one that discourages business expansion and job growth; gobbles up open space by encouraging unwise land use and warehouse proliferation (Connecticut’s newest engine of growth); destroys cities; creates disparate educational opportunities; and has hastened the exodus of residents to no- or low-income tax states.
The property tax burden must be ameliorated, which can only be done if the state’s tax structure is overhauled. This is not the time for half-baked measures, gimmicks or patchwork fixes. It is the time for fundamental reform and a rebalancing of the state’s tax structure, given that the state is flush with money and can dare to think big and act courageously.
To that end, the Property Tax Working Group, a project of 1000 Friends of Connecticut, has prepared a fact-filled report, “Connecticut Property Taxes: Opportunity for Change,” (www.taxpolicyct.org) which spells out the deep seated problems with the current tax structure and provides a hearty menu of solutions.
Skeptics will ask: Where is the necessary money going to come from if Connecticut rebalances its tax structure and reduces the property tax burden? As legitimate as that question may seem, it is disingenuous to suggest that there aren’t realistic solutions. One, which has been suggested over and again by a litany of advocates, is to raise the personal income tax rate on the uber-wealthy. Gov. Ned Lamont has unwisely resisted that course of action, which is unfortunate.
But there are alternatives, including the scores of tax breaks for special interest groups that have turned out to be counter-productive. For example, The CT Mirror recently reported that over the past decade, “the average economic impact of the Film and Digital Media Production Tax Credit amounted to a loss of $58,510,604 in net revenue per year – well over half a billion dollars in all.” That information is from the 2019 annual report of the state Department of Economic and Community Development.
Curiously, the DECD recommended continuing the tax-credit program despite the losses. But Connecticut can no longer pander to special interests while ignoring the plight of its residents, particularly those who are struggling to keep their heads above water. The data are irrefutable. The property tax particularly hurts those at the lower end of the income spectrum.
Households in the bottom income range, which is about half of all households in the state, pay 12.52% of their income in property taxes, while households in the top income range pay an effective property tax rate of 4.03% or less. Looked at another way, 90% of state households pay, on average, property tax rates that are two to seven times higher than the 10% of households with the highest incomes.
Those statistics underscore two inherent flaws in the property tax system: Owners of property with similar value are taxed at different rates depending on where they live, and low- and moderate-income households pay far more than their upper-income peers.
As a start to repairing the state’s poorly designed tax structure, 1000 Friends has recommended three steps that the state can take immediately:
• fully fund the program that reimburses cities and towns for non-taxable property (dubbed PILOT or Payments in Lieu of Taxes);
• contribute more aid to the municipal budget-busting cost of special education; and
• provide low-income households – including renters, who pay more as a percentage of their income toward housing than homeowners – with a refundable property tax credit.
These are not pie-in-the-sky ideas but realistic proposals that would begin to address the unfairness, inefficiency and regressivity built into the state’s tax structure.
If policymakers fail to correct these inherent flaws, the state will continue down a path littered with distressed cities, educational inequality, job losses, fleeing retirees, and ever more warehouses.
Be bold, Connecticut.
Michele Jacklin is a member of The Property Tax Working Group of 1000 Friends of Connecticut.