As lawmakers grapple with the state budget, one advocacy group wants them to consider revenue-generating options – including raising the tax on cigarettes and imposing a “sugar tax” – rather than cut funding to services for children and families.
Of the $590 million in budget cuts proposed in Gov. Dannel P. Malloy’s budget, $316 million involve investments pertaining to the wellbeing of children and families, according to advocacy group Connecticut Voices for Children.
In addition to the cuts, the proposed budget fails “to take bolder steps to redress the existing inequities in Connecticut’s tax system,” according to a recent report by the group’s Fiscal Policy Fellow Nicholas Defiesta and Executive Director Ellen Shemitz.
An “essential role” of government is “to ensure that there’s opportunity for all children, that there’s some equity in the resources and opportunities available to each child,” Shemitz said Monday.
“Right now there are real barriers” preventing some in the state from realizing the American Dream, she said, and further cuts to services will make matters worse.
A Malloy spokesman did not respond to a request for comment. On the campaign trail Malloy promised not to increase taxes even though his two-year budget increases revenues from corporations and hospitals by about $690 million. The increase in revenues and calculation error that put Malloy’s budget $54 million over the spending cap opened the door for lawmakers to start exploring tax increases.
When it became obvious how painful some of the spending cuts would be, Voices released a report that urged lawmakers to consider tax measures to grow revenue.
One of the recommendations is to raise the tax on cigarettes, which currently is $3.40, by 95 cents. The move, according to the group, would generate an estimated $60 million and most Connecticut voters would be in favor of the increase.
The group also supports a proposed bill that would enact a so-called “sugar tax,” or tax on candies and sugar-sweetened drinks. If passed in its current form, H.B. 5461, would raise an estimated $179 million in addition to bringing public health benefits, according to the group.
Lawmakers also should consider broadening the base of the state’s sales tax on services, according to Voices. As the service sector comprises an increasingly large portion of the economy, taxing more services could allow the state to decrease the sales tax rate – currently 6.35 percent – to 5.25 percent or lower and still generate additional money, according to the group.
Two more recommendations target tax expenditures. Expenditures include exemptions, deductions and credits that certain taxpayers can take and, according to Connecticut Voices for Children, cost the state more than $6 billion in lost revenue annually.
The group also wants lawmakers to examine current expenditures, which typically are not reviewed regularly, and sunset those that “advance no clear public benefit,” the report says. Certain outdated tax expenditures should be eliminated altogether, such as one enacted in 1994 totaling nearly $140 million to bolster the computer and data processing industry, according to the report.
When it comes to the income tax, Voices would like to see the state raise the income threshold to make it more progressive. The state’s personal income tax is progressive for families earning less than $500,000 and flat for those who make more.
“The result is that the state asks less from those who can afford to pay more,” says the report.
Connecticut would get more money by increasing the income levels that pay a progressive tax, the group says.
Many of the estimated revenue-generating figures included in the Voices report are based on an analysis group requested from the Washington, D.C.-based Institute of Taxation and Economic Policy
One of the recommendations would affect the business community: the group wants the state to require combined reporting. That means businesses that operate in multiple states would have to report any income and expenses they have in those states together.
Shemitz said she is “very optimistic” legislators will consider Voices’ recommendations, since people on both sides of the aisle have decried the proposed cuts.