A New Haven-based think tank Tuesday proposed three fixes for a regressive tax system that disproportionately burdens working- and middle-class families: higher income tax rates on top earners, new taxes on capital gains and mansions, and expanded property and earned income tax credits.
Those proposed solutions are all included in a new report put out by the think tank, Connecticut Voices for Children.
The 79-page report is called “Advancing Economic Justice Through Tax Reform.” It was published on Tuesday, when it was also the main subject of discussion during CT Voices’s 20th annual budget forum, held online via Zoom.
“These are unprecedented times with big problems, and big problems require big solutions,” CT Voices Executive Director Emily Byrne said about the current confluence of the Covid-19 public health crisis, the pandemic-induced economic shutdown, and the ongoing national reckoning with systemic racism.
“Opposing tax reform because it includes tax increases on the wealthy is equivalent to supporting the current disproportionate burden on working- and middle-class families,” said CT Voices Research and Policy Fellow Patrick O’Brien, who was the lead author on the report. At a time of such stark income inequality, in the state and nationwide, he said, advocating for the economic status quo “is much more radical” than pushing for a relatively modest redistribution of wealth.
Click here to read the full report.
Report: Tax Reform Can Tackle “Economic Injustice”
The report and O Brien’s presentation on Tuesday described rising income inequality in the U.S. and in Connecticut in recent years, an even sharper racial wealth gap, and the direct relationship between “economic injustice” and material struggles of families that make up 90 percent of the income spectrum.
“Most notably, it limits the ability of many families to ensure that they have high-quality health care, child care, food, and clothing,” the report reads. “It limits the ability of many families to purchase homes or rent apartments in safe neighborhoods of their choice with well-funded public schools. It limits the ability of many families to provide the emotional and developmental support necessary for high needs children. It limits the ability of many families to support their children in career and college attainment without the burden of excessive debt. And it limits the ability of many families to ensure that future generations will have more opportunities than previous ones.”
Citing a comprehensive 2014 study by the state Department of Revenue Services (DRS), O’Brien reported that Connecticut’s lowest decile of earners (who make less than $53,418 a year) pay an effective tax rate of 23.62 percent, while the state’s highest decile earners ($14.7 million and up) pay an effective tax rate of 6.28 percent.
As one of the event’s featured speakers, New Haven State Sen. and Senate President Pro Tem Martin Looney (see below), said during the forum, “Low-income people pay a lot of taxes. They may not pay state income taxes, but they pay a disproportionate share of state sales taxes. They pay a disproportionate share of property taxes.”
The focal point of O Brien’s presentation and of the report was how to change the state’s tax structure to address this current imbalance.
The report is replete with suggestions. Here are just a few:
• Increase the current top income tax rate of 6.99 percent on income over $500,000 for single filers ($1 million for joint filers) to 7.99 percent, and create a new millionaire income tax bracket of 8.49 percent on income over $1 million for single filers ($2 million for joint filers). Estimated annual boost to state tax rolls: $504 million.
• Follow the model of New York, and increase the current top income tax rate of 6.99 percent to 8.97 percent, and create a millionaire tax bracket of 12.696 percent. Estimated annual windfall: $1.72 billion.
• Lower the estate and gift tax exemption to $5 million, increase the top tax rate to 14 percent, and remote the $15 million payment cap. Estimated annual boost: $108 million.
• Establish a 1 percentage point investment income surcharge on the portion of income exceeding $500,000 for single filers ($1 million for joint filers). Estimated annual boost: $167 million.
• Establish a 1 percent statewide property tax on the portion of the market value of each home in excess of $1.5 million. Increase that tax rate to 1.5 percent on the portion in excess of $2 million. Estimated annual revenue boost: $449 million.
• Increase the Connecticut Earned Income Tax Credit to 40 percent. Estimated annual cost: $82 million, or $102 million if including immigrants who pay and file taxes with an Individual Tax Identification Number (ITIN)
• Increase the maximum Connecticut Property Tax Credit to $500 and make it refundable, double the income threshold, restore eligibility to non-seniors and childless tax files, and extend the credit to renters. Estimated annual cost: $585 million.
“Opponents of these tax policies will attack them as a tax increase,” O’Brien said. “We’re proposing tax reform, which includes raising taxes on the wealthy to lower a disproportionate tax burden on working- and middle-class families.” This is not just about raising taxes for the sake of increasing government spending, he said.
Looney: The Progressive “Struggle Continues”
Yale political science professor Jacob Hacker gave the forum’s keynote address about focusing as much on political power as on tax changes in order to achieve a more just society. Looney (pictured, with a clock awarded to him by CT Voices) talked about the progressive policies he and his state legislative colleagues have been able to pass over the past three-plus decades.
In 1991, when Looney was still in the state House of Representatives, Connecticut implemented its first state income tax. At that time, the income tax was flat and applied the same rate to all earners, he said. “Unfortunately, the State Senate at the time did not have enough Democratic votes to pass a progressive income tax.”
And so Democrats in the state legislatures pushed and pushed for modification. A first breakthrough came in 2009, he said, “when we built the first differential rate by raising the top rate to 6.5 percent.”
That budget debate went on all summer, he said, and a deal was ultimately struck with former Republican Gov. Jodi Rell. The budget was passed exclusively with Democratic votes, and Rell let it become law without her signature.
Under a Democratic governor, Dannel Malloy, the legislature was able to pass and get signed into law further progressive shifts to the income tax structure in 2011 and 2015, he said.
“That struggle continues.”
Outside of income tax fights, the state legislature was able to pass a bill in 2011 that provided in-state tuition eligibility for undocumented immigrants. In 2012, state Democrats successfully pushed for the repeal of the death penalty.
And in 2019, the state legislature passed an increase in the minimum wage as well as a paid family and medical leave bill.
“There are significant ways that we can make our tax structure more progressive still,” he said.
For example, by having a separate tax on very high-level income from capital gains, dividends, and interest. Or by increase the top rate of the income tax.
Democrats have a firm control of the state legislature, with supermajorities in both the Senate and the House.
Reflecting back on decades’ worth of progressive advocacy in Hartford, Looney noted one other critical feature that Democrats in the state legislature need in order to push through the type of agenda outlined by CT Voices.
“Having a Democratic governor aligned with the legislature makes all the difference when trying to enact progressive policy,” he said.
The state’s current governor, Ned Lamont, is a Democrat. And, so far in his first term in his office, has proven reluctant to embrace any kind of major progressive tax reform.