(Updated) With a long list of ways to increase the state’s revenues, a coalition of community groups, labor unions, and religious leaders says it has a solution that targets those in the state with the greatest ability to pay.
While acknowledging that targeted spending cuts also need to be part of the solution most of the coalition’s proposal focused on tax increases.
At a Capitol press conference, Maggie Adair, deputy director of the Connecticut Association of Human Services, said increasing revenues would align Connecticut with 30 other states that have acted in the last year to increase revenues.
“Revenue enhancements can be carefully focused on those who have the greatest ability to pay, while maintaining or lowering tax rates for people who are struggling the most and for small businesses that are key to job creation,” she said.
Jamey Bell, executive director of CT Voices for Children, advocated against “cutting our way out of this deficit.“ She said cuts will undermine the state‘s ability to recover from this economic crisis.
Bell suggested closing corporate tax loopholes that allow companies to shift profits to other states to avoid paying corporation taxes in Connecticut. She said the group also supports evaluating the $5 billion in tax breaks, exemptions, and credits that “favor some businesses and activities over others.”
William Cibes, former Budget Secretary for Lowell Weicker, said he doesn’t think the state can find $5 billion in savings from this type of inspection. He suspects a lot of the $5 billion in tax exemptions is on things like food and medical services.
“We don’t have $5 billion available there to reduce tax expenditures,” he said disagreeing slightly with some of his partners in the Better Choices Coalition.
“I think it’s clear that there is no silver bullet to deal with the problem we face over the next two years…a deficit of $3.8 billion a year,” Cibes said.
“Unless you’re a math atheist it looks to me like you can’t cut more than $1 billion and probably far less than that,” Cibes concluded at Wednesday’s press conference. “Which leaves in fiscal year 2012 a gap of $2.8 billion, so there’s going to have to be revenue increases of some kind.“
“The question is not if there’s going to be revenue increases, the question is which revenue increases are we going to have to see,” Cibes said.
What about borrowing?
“Certainly we can’t borrow for current expenses as we have for the last year and as we plan to in fiscal year 2011,” Cibes said.
Spending cuts will be part of the solution, but closing a $3.8 billion deficit by cutting alone is not possible, Cibes said. Even if the state eliminates all 55 state agencies it will only save $400 million.
“There will need to be some scalpel like cuts in the large agencies,” Cibes said.
He said the state should create a commission to review the state’s entire tax structure and possibly debunk some myths along the way.
He said it’s a myth that Connecticut’s corporation tax is excessive.
A national study of state and local business taxes seems to show that it’s the property tax that’s the most burdensome to Connecticut businesses, he said.
Property taxes in Connecticut are 41.5 percent of the total state and local tax burden on businesses. Sales taxes are 21.4 percent and the corporate income tax is only 7.3 percent of the total tax burden, according to this Ernst and Young report released in Jan. 2009.
The total business share of all state taxes puts Connecticut third lowest in the country, Cibes said.
Calls to the Connecticut Business and Industry Association were not immediately returned for comment.
House Minority Leader Lawrence Cafero, R-Norwalk, said last year the Democrat-controlled legislature adopted some of the coalition’s ideas and “look where we’re at.”
“We raised taxes on millionaires and increased the corporate surcharge without cutting spending,” Cafero said. “We need to change the way the state does business.”
If a business is having a hard time making a profit because it isn’t selling enough product, it doesn’t increase the price of that product and expect to make a bigger profit, Cafero said.
“There’s going to be no one left to tax if the state continues down this path,” he said. “We need to cut down to the bone.”
Meanwhile the coalition suggested a number of other revenue options to help close the budget deficit, including a reduction in the gift and estate tax.
“If we can‘t afford an across the board reduction in the sales tax that would benefit everyone in Connecticut, surely we can‘t afford estate tax cuts that would exclusively benefit Connecticut‘s wealthiest residents,” Bell said.
The coalition also advocated for making the income tax more progressive. “Even after Connecticut’s recent income tax increases for very high income households, Connecticut’s wealthy families still pay a much lower share of their income in state and local taxes than middle income families and lower income families do,” Bell said.
She said an 8 percent income tax on couples making more than $1 million, 7 percent on couples making more than $500,000, and 6 percent on those making more than $200,000 could bring in up to $600 million per year.
Last year the state increased the income tax on couples making more than $1 million from 5 percent to 6 percent, but income tax projections are currently $200 million below projections, according to state Comptroller Nancy Wyman.
The coalition also advocates increases in the petroleum gross receipts tax, sales tax, and alcohol tax. In addition it supports creating a windfall profits tax on generators of electricity.
To view the coalition’s entire proposal click here.