- Record cuts to Connecticut’s public schools and institutions of higher education.
- Drastic and devastating cuts to vital human services
- Continuation of corporate welfare programs and efforts to coddle the rich.
Governor Dannel Malloy, with the help of the Connecticut General Assembly, is destroying core government programs and undermining Connecticut’s economic path.
This legislative session, the Democrats in the Connecticut legislature will be faced with a choice – continue Malloy’s disastrous policies – or stand up to the bully and pass a fair and honest state budget.
In order to adopt a better budget solution legislators will need to identify new sources of revenue to pay for vital state services and programs.
To that end, Connecticut Voices for Children has released a major report – today – on Revenue Options to deal with Connecticut’s Fiscal Crisis
Providing a light for Connecticut legislators should they decided to do their job and resolve Connecticut’s massive budget crisis, Connecticut Voices for Children released a report today entitled, Revenue Options are Key to Tackling Budget Shortfalls and Supporting Thriving Communities
CT Voices writes;
In confronting budget deficits of more than $3 billion in the upcoming biennial budget, the commonsense choice for Connecticut should be a balanced approach that includes revenue, rather than a cuts-only approach that threatens an already fragile recovery. Last year, lawmakers chose an “austerity” approach, balancing the budget with $850 million in spending cuts. As a result, the Children’s Budget—a measure of the state’s investments in children and families—fell to a record low 29.5 percent of total General Fund spending.
While such cuts may offer a short-term solution, they do so at a significant cost to the long-term economic structure of the state.
On the revenue side, there are opportunities to invest in Connecticut’s future by modernizing an outdated sales tax system, strengthening taxes on corporations, and reforming wealth and income taxes. This brief highlights revenue options discussed and/or recommended by the State Tax Panel– –a body of experts who met over the course of two years to evaluate Connecticut’s state and local taxes. While the Panel’s final recommendations were required to be revenue neutral, the policies themselves can be adapted to yield new revenue to support essential investments in our future.
By combining increased revenue, new strategic investments, and smaller budget cuts, the Governor and the Legislature can both balance the budget and position the state for a more prosperous future.
One of the key elements of the report is an effort to explore a variety of options to ensure that the state’s wealthiest residents start paying their fair share.
Looking to reform wealth and income taxes in Connecticut, CT Voices observes;
A recent report from the Center on Budget and Policy Priorities finds that Connecticut’s income distribution is the third most unequal state in the nation.7 The report cites upside down total state and local tax systems (which impose a higher effective rate on lower income taxpayers) and the growth in the share of investment income (from dividends, capital gains, and interest) to total income that goes primarily to high-income households, as contributing factors
Indeed, Connecticut’s overall tax system (including income, property, and sales and excise taxes, minus federal deductions) allows the most powerful among us to pay a much lower percentage of their income in taxes. For example, a family making less than $25,000 a year pays an estimated 11 percent in state and local taxes while a family making over $1,331,000––the top 1 percent––pays 5.5 percent.8 If the top 5 percent of Connecticut households paid the same effective tax rate as the remaining 95 percent of households, the state could raise more than $2 billion in state revenue annually.
Combined, the listed changes could raise more than $1 billion while also creating a fairer tax system and reducing wealth inequality:
Increase Top Tax Rate for Top Two Tax Groups ($238 million): A half percentage point increase on the top two personal income tax brackets would result in an estimated $283.1 million in new state revenue—more than 82 percent of which would fall on the top 1 percent of taxpayers. Over a third of this tax increase would be offset by larger federal income tax deductions typically available to high-income earners, meaning that of the $238 million in new revenue, the state would raise $150.4 million from taxpayers, while the other $87.6 million would be picked up by the federal government.
Increase Capital Gains and Dividends Taxes for Top Three Tax Groups ($134.6 million): Carried interest is the share of earnings that investment managers receive from a profitable return of their client’s investment. The federal government treats carried interest as investment income, or capital gains, rather than as wages or commissions. This preferential treatment results in a federal tax liability that is 50 percent less than it would be for ordinary income. This is known as the carried interest loophole. Despite bipartisan support, little hope exists that Congress will take action. By increasing the tax on capital gains and dividends at the state level, Connecticut could redress the large preferences these two types of income enjoy in the federal tax code and raise $134.6 million.
Taxing capital gains and dividends would represent a return to historical treatment of unearned income. When Connecticut’s income tax was enacted in 1991, taxes were also cut for higher-income earners by eliminating a 7 percent tax on capital gains and a 14 percent tax on dividends and interest. Thereafter, investment incomes were subjected to the state income tax at a much lower rate of 4.5 percent. While the top income tax rate has increased to 6.99 percent, it is still below pre-1991 levels for unearned income. Moreover, any increased taxes on unearned income, like any increase on earned income, would be offset in part by larger federal income tax deductions.
Millionaires Thrive in Connecticut Thanks to Public Investments Anti-tax advocates have been inaccurately citing Internal Revenue Service (IRS) data in an effort to convince their audience that higher taxes have resulted in a “mass exodus” of residents seeking low tax states.9 They assert that the income of residents who moved out of the state is income lost to another state, therefore depleting Connecticut’s finances. It is a claim that former Tax Foundation economist Lyman Stone has written rests “on an egregiously wrong use of the data” by analysts who “have either failed to perform the most basic due diligence…or else actively mislead their readers.” In other words, the vast majority of people who leave a state hold jobs that will be filled by people joining the labor force from within the state or moving in, resulting in no “loss of income” at all.
Indeed, a 2016 study found that millionaires were much less likely to move than the rest of the population and that there was only a very small influence of income tax rates on the probability of moving. This study, based on 13 years of IRS tax data from all millionaires in the U.S., found that millionaire mobility and the low levels of responsiveness of millionaires to taxes meant that top tax rates would only start to decrease revenue if they were significantly higher than the single digit rates of Connecticut. A half percent, one percent, or two percent increase in the top tax bracket would not have a negative impact on revenue due to migration.
Join Regional Compact to Close Carried Interest Loophole ($535 million): Another way in which states could act to close the carried interest loophole in light of inaction in Washington D.C. would be to form a regional compact. Already raised by the New York and New Jersey legislatures, the proposed legislation calls for Northeastern states to impose a tax rate on carried interest sufficient to capture each state’s share of the increased federal income tax liability that would be incurred if the loophole were closed at the federal level. Both states’ proposals call for a 19 percent “carried interest fairness fee” until the loophole is closed at the federal level. By definition, the compact would not go into effect until all states (New York, New Jersey, Massachusetts, and Connecticut) enacted the same provisions. It is estimated that Connecticut could raise $535 million by doing so.
And the Connecticut Voices report outlined a number of other steps that Governor Malloy and the Connecticut General Assembly could take to deal with Connecticut’s fiscal crisis. The full report can be found at: http://www.ctvoices.org/sites/default/files/Revenue%20Options%202017_0.pdf