Instead of focusing solely on renewing the child tax credit, Connecticut Voices for Children want the state to stop making additional payments to the underfunded state pension system because they say it increases income inequality.
In its annual budget presentation, done this year via Zoom, the group also advocated for an increase in taxes on the wealthy and adjustments to the volatility and revenue caps credited with boosting the budget surplus.
The organization, according to its report, concluded that Connecticut should continue to make those fully required pension payments this year, but that anything beyond that increases the unfairness of Connecticut’s budget.
The additional nearly $5.8 billion in pension payments over the last few years has received praise from both Democrats and Republicans, but Connecticut Voices for Children’s research and policy director Patrick O’Brien said it has “the substantial cost of increasing the unfairness of the budget.”
He concluded that if Connecticut stopped making those additional payments it would see between $490 and $735 million a year in available revenue. He added that it could generate an average of an additional $1.5 billion in revenue if it further reformed the volatility and revenue cap.
To create a fairer tax system, according to O’Brien, policymakers could use a portion of the newly generated revenue to fund major tax reforms, such as adding a cost of living adjustment to Connecticut’s income tax, making permanent the Connecticut child tax credit, increasing and expanding the Connecticut earned income tax credit, and improving the Connecticut property tax credit.
He advocated for changing the bond lock, which expires July 2023. He said giving the state an additional $1.5 billion in revenue per year to play with by changing the definitions of those two caps would create a fairer tax system or a fairer spending system rather than used to pay down additional pension debt.
Gov. Ned Lamont has said he planned to fight to maintain those two caps shortly after he was reelected to a second term.
The group also advocated for more resources for the Department of Revenue Services to increase its tax compliance. They said it would generate up to $2.6 billion a year and help reduce the income inequality that exists in the state.
In Connecticut, according to the report, the bottom 50% of tax filers account for less than an estimated $150 million, or 6%, of the income tax gap, and the next 40% of tax filers account for less than an estimated $790 million, or 30%, of the income tax gap. In comparison, the top 5% of tax filers account for an estimated $1.4 billion, or 53%, of the income tax gap, and the top one percent of tax filers alone account for an estimated $725 million, or 28%, of the income tax gap.
And again, like it has in past years, the group advocated to get rid of the top six tax expenditures like the film tax credit program that incentivizes production companies to make movies in the state.
Connecticut could generate up to nearly $770 million a year in revenue by eliminating or reducing six of the state’s high cost, high growth tax expenditure programs, it concluded.
The New Haven-based policy group also recommended that Connecticut increase the the top income tax rate from 6.99% to 7.99%, which it says would generate an extra $300 million. Creating an additional bracket for those making more than $1 million a year would generate about $500 million per year.
It also wants to see the state add a surcharge to the capital gains of wealthy households and set a statewide property tax on homes valued at more than $1.5 million. It says this would generate between $85 and $195 million a year.
Lamont, a Greenwich millionaire, has been against a capital gains surcharge since he was first elected in 2018.
According to his 2021 tax return, released during the campaign, Lamont, who does not take a salary from the state, made $54 million. All of that came from capital gains which are managed through a blind trust while he serves as governor.
House Speaker Matt Ritter, who was the keynote speaker for the event, noted the progress the state has made over the past few years in building up its surplus.
He said back in 2010 the state had to borrow money in order to pay for operating expenses. He said he doesn’t begrudge lawmakers who had to make that tough decision, but he doesn’t want to return to those days either.
“We are now in a place in Connecticut where stability and predictability are really important,” Ritter said. “… We have to find the right amount of relief to provide that helps working families and that is real, but also not sacrifice the future in doing that.”