Even after recent changes to Connecticut’s tax structure, the state’s wealthiest residents still pay only half as much of their income to state and local taxes as their middle class and poor counterparts, according to a recent analysis by the Connecticut Voices for Children.
The report praised tax reforms enacted after the 2011 legislative session like the earned income tax credit, which it said helped reduce the tax burden on the state’s lower wage earners. It also helped that income taxes were raised on the upper tax brackets, it said.
“These changes were essential to a balanced approach to our economic and fiscal problems that helped protect vital education, health, and other services for families and position Connecticut for long-term economic growth,” the report read.
But the changes weren’t enough to make the tax system fair, it said, citing statistics from the Institute for Taxation and Economic Policy.
Lower and middle-income earners will still pay between 9.6 and 11.4 percent of their income in state and local taxes, after federal deductions are accounted for, the report estimated. The state’s wealthiest 1 percent of residents will only be paying 5.5 percent, it said.
“Few would agree that those most able to pay should contribute less of their income than those least able to pay,” the report said.
The report said it’s important to view the numbers in context given that Republicans staunchly opposed this year’s tax hike.
The gap between what Connecticut’s wealthiest 1 percent and the poorest 20 percent paid in taxes was higher than most states in 2009, it said.
That year Connecticut ranked among the top ten states with the highest taxes on the poorest 20 percent and was among the 20 states with the lowest taxes on its top 1 percent, the report said.
The differential between what high and low earners pay is largely due to the fact that in Connecticut, regressive taxes that hit low earners harder outweigh progressive taxes, which have a greater impact on the wealthy, it said.
“In wealthy states like Connecticut, regressive taxes are especially troubling because they make the problem of rising income inequality worse. As we continue to reform our state and local tax systems to be more fair and effective, more should be done to equitably distribute state and local taxes,” it said.
Fergus Cullen, executive director of the Yankee Institute, said the rich in Connecticut pay the vast majority of overall taxes and the top six percent pay as much as the lower 94 percent in income taxes.
He said based on his 2009 research paper, which used 2007 tax data (the most recent at the time), 1.3 percent of Connecticut’s wealthiest citizens paid 35 percent of all income tax receipts. He said the bottom 60 percent, those with incomes under $60,000, paid less than 10 percent of state income taxes.
He said he couldn’t speculate about what those numbers may look like now because of the 2008 market crash, coupled with the 1.5 percent increase in income taxes on the wealthiest citizens, it’s hard to say if that still holds true. However, he said, what the state should do is appreciate the rich people who are contributing to the state’s coffers.
The Connecticut Voices for Children report disputed claims of anti-tax advocates like the Yankee Institute that suggest raising taxes on the wealthy would cause them to migrate from the state.
It cited a recent report by a research institute at the University of Massachusetts Amherst that studied tax migration around New England. That report found that raising taxes and using the revenue to create jobs actually draws more people into a state, it said.
