Three key tax reforms to help make Connecticut more fair
In 2014, the Department of Revenue Services released a study showing how much Connecticut residents contribute in taxes. The information is illuminating. Earners of $75,000 or less paid at least 14 percent of their income in state and local taxes. Earners of $2 million or more paid at most 6.5 percent. The reason for this inequity? Connecticut relies more heavily on property and sales taxes than other states -– two regressive taxes that hit lower income earners significantly harder than higher income earners.
In addition to the inequity created by our reliance on two regressive taxes, our income taxes for the highest tax bracket – typically a more progressive tax structure – remain low. This further shifts Connecticut’s tax burden onto working families.
When people talk about the two “biggest tax increases in our states history,” they misrepresent the facts. The top marginal tax rate – people making half a million or more – went from 6.5 percent to 6.7 percent in 2011, and 6.7 percent to 6.99 percent in 2015. That means we have only raised taxes on the wealthy a total of less than one half of one percent over the past decade. Meanwhile, the top 1 percent of income earners in our state took 84 percent of all new income in Connecticut over the last 30 years.
That’s right, for every new dollar made in Connecticut for the past 30 years, 1 percent of people took 84 cents of that dollar, leaving 16 cents for the other 99 percent of us.
When I – as well as other members of the recently formed Progressive Democratic Caucus – talk about equitable taxation, this is what we are trying to fix. So how do we fix it? Well, we don’t keep doing the same things that haven’t been working.
We didn’t stumble upon our budget woes overnight. For nearly 45 years, legislators and governors of both parties abdicated their responsibility by not properly funding our pension obligations. We made promises to people. We told them that if they spent their career working in service of the people of Connecticut, they would get a retirement pension. Our obligations necessitated putting money towards the retirement fund early and often, just like we pay towards our own retirement. But we didn’t do that.
Whether you hate Malloy or love him, he was the governor who finally made the necessary, pragmatic decision to fully fund our obligations using fiscally appropriate methods. That is why our budget deficit seemed to appear overnight – because we finally confronted our obligations.
This decision, coupled with the 2008/09 economic crash that drained our $1.2 billion rainy day fund down to $200 million, meant that we had nothing to fall back on while costs appeared to sky rocket overnight. We know that Connecticut has a budget problem. Now, we have limited options: renege on our obligations, cut costs, or raise the revenue. Only one of these is fair to our workers and our residents.
We already started reneging by going after the unions to renegotiate their contracts for tens of billions of dollars over the next couple decades. We can call it “givebacks,” but the bottom line is that this renegotiated union deal takes money out of the pockets of our middle-class earners. And as we should all know, taking money out of the middle class only hurts our already struggling economy as less money flows through it. Next, we have begun to go after teachers and their retirement – during a time when the profession is seeing new entrants at historic lows. None of this is good for the long-term health of our state.
We need to get out of this fiscal mess one way or another. If we don’t do it right, the widening chasm between the haves and the have-nots will increase, the economy will stall as people have less disposable income, and the death spiral this creates will continue. However, there are three key tax reforms that we can make to balance our state budget and restore a strong middle-class to our economy.
First, let’s equalize our property tax structure. Greenwich has a mill rate of 11, Hamden a mill rate of 49, and Hartford a mill rate of 75. Point blame at the unions or failed management all you want, but know this: there is $750 million dollars uncollected in property tax due to the untaxable nature of government buildings, universities, and religious institutions. Of that $750 million, $300 million is untaxed by New Haven and Hartford alone. Because municipalities have such limited means by which to raise revenue, we must rely on the state to figure out how to offset the damaging impact of these regressive taxes.
If we follow the Vermont model, we could implement one statewide property tax that goes towards equitable education spending. This wouldn’t completely ameliorate the regressive nature of the property tax, or the need for municipalities to raise revenue for other line-items, but it will help off-set it.
Next, we need to lower our sales tax. The idea that progressives just want to haphazardly raise all taxes is wrong. We want to raise equitable revenue to ensure that everyone has an equal chance at a productive life. Because lower-income earners must spend every dollar just to stay afloat, nearly every dollar a lower income earner spends is subject to the sales tax. Not so for higher income earners, who can put money away for retirement, or park it in investments and overseas accounts. The sales tax is more stable than the income tax, a noble pursuit, but stability is only part of the overall equation, and should never usurp the importance of fairness.
Lastly, we need to introduce a millionaire’s tax. New York, Massachusetts, and New Jersey have done this with great effect. The notion that the wealthy are leaving in droves from our state is fiction. The vast majority of those leaving are earners of $50,000 or less. And the idea that we are losing jobs is also wrong – we have been gaining jobs since 2010, though our recovery has been anemic when compared to our neighbors.
The cost of living is continuing to increase in Connecticut while wages stagnate. Further, we cannot rely on anecdotal evidence of one wealthy person leaving our state as the foundation for tax policy. Longitudinal studies show that state income taxes have little to no effect on the out migration of the wealthy.
Connecticut is struggling. We all know this. But this does not mean we need to give up, and it certainly doesn’t mean we should keep pursuing failed policies. Instead, we need bold, progressive change that will restore balance and fairness to our state and economy. These three changes won’t happen overnight, but with hard work and many productive conversations, we can make them happen and change the direction of our state for the better.
Josh Elliot is a Democratic State Representative from Hamden.
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