Members of the Finance, Revenue, and Bonding Committee were uncertain Friday about how many tax reforms they could implement this year and which ones will have to wait.
Rep. Jeffrey Berger, D-Waterbury, who co-chairs the committee, said he understood the recommendations by the Connecticut Tax Panel were long-term solutions, but there were a couple that he thought could be taken up in this year’s abbreviated legislative session. These included reforms to the estate and gift taxes and revisions to probate court fees.
Former Sen. William Nickerson, a Republican from Greenwich who co-chaired the tax panel that spent two years studying the tax system, said taxes are one of the reasons wealthier individuals are moving.
“That outmigration is at a critical stage for us here,” Berger said.
The panel’s recommendations include repealing the gift tax and realigning Connecticut’s estate tax with the federal government’s. The estate tax in Connecticut of 7.2 to 12 percent currently applies to estates worth $2 million or more. The federal government’s threshold was $5.45 million for 2016.
Nickerson said a previous state study found that the three reasons people leave the state are “proximity to relatives, climate and taxes.”
Some say those individuals are motivated to leave based solely on proximity to relatives and climate, “that’s not true,” Nickerson said. On the other hand, those who say taxes are the lone reason for the migration are not correct either, he added.
Rep. Roland Lemar, D-New Haven, said experts who testified in front of the panel found Connecticut has not lost residents due to changes to the estate and gift tax.
“Connecticut has experienced a fairly steady net outflow of elderly migrants since 1980,” Lemar said quoting the research and adding that the stability of the migration proves “they’re not leaving because of tax purposes.”
Lemar urged his colleagues to focus on research and stay away from anecdotes about high net-worth individuals leaving the state because of taxes.
However, Nickerson said that conflicts with the information the panel received from tax attorneys who deal with residents leaving the state.
Taxes “are an issue, they’re not the only issue,” Nickerson said.
Lemar suggested the property tax is a bigger motivator for people to leave the state and that’s the problem the panel should have focused on more than it did.
“It is the property tax that is the primary tax that’s impacting people’s ability to do business and own a home and live in a community, not the estate and gift tax,” Lemar said.
There are two pre-filed bills
The tax panel also tackled recent changes to Probate Court fees.
Robert Ebel, executive director of the Connecticut Tax Panel, said Connecticut’s probate fees are the highest in the country and should be reined in to reflect the cost of service, rather than a full cost-recovery.
Last year, the legislature stopped funding the Probate Court system, a total of $32 million over two years, and forced them to raise their fees in order to sustain their operations. In addition to requiring the Probate Court to become self-sustaining, the $12,500 cap on probate court fees was eliminated and it doubled the fee on estates worth more than $2 million.
Rep. Gail Lavielle, R-Wilton, pre-filed a bill to appropriate state funds to the Probate Court in order to restore the cap on fees that was removed during last year’s legislative session.
The Connecticut Tax Panel also recommended implementing a 1 percent local sales tax. The revenue would be collected by the state Department of Revenue Services and placed in the Municipal Revenue Sharing Account.
The local sales tax, according to the panel, would decrease the over-reliance on property taxes, and potentially decrease fiscal disparities between towns and cities.
While all other recommendations in the report were adopted without dissent by the panel, the local sales tax was a point of contention. Nickerson voted against the proposal.
“Once money is collected by Hartford, it will be very difficult over time to assure that it’s not taken in Hartford for the state budget, which as we all know is under tremendous stress,” Nickerson said.
Nickerson added: “It does imply another layer of taxes on top of the existing tax, without any assurance that some other taxes would be off-set against it.”
Four members of the tax panel said the panel “failed its statutory charge ‘to review the state’s overall state and local tax structure’” because of its refusal to fully address the problems in Connecticut’s property tax system.
William Cibes of 1,000 Friends of Connecticut agreed.
“These are stepping stones to reform,” Cibes said. Cibes, who was the architect of Connecticut’s income tax during former Gov. Lowell P. Weicker’s administration, said “real change” will not happen “without a commitment by policy makers to confront a fundamental rebalancing of our tax structure.”
