Next CT tax fairness study must focus on inequality

Next CT tax fairness study must focus on inequality

Next CT tax fairness study must focus on inequality

The legislature’s tax-writing panel hopes to build upon recent efforts to study income and wealth inequality in Connecticut, endorsing a measure that would broaden the state’s biennial assessments of tax fairness.

The Finance, Revenue and Bonding Committee specifically approved a measure last week that would require future studies to consider all state taxes that generate at least $100 million per year, include tax impacts on the richest one-half of 1% of Connecticut households, and require the inclusion of more demographic information when assessing tax impacts on various income groups.

The proposal, along with the spending and revenue plans and other fiscal policy bills recommended by the Finance and Appropriations committees, will set the agenda for final negotiations between Gov. Ned Lamont and top lawmakers for a new two-year state budget.

The Democrat-controlled General Assembly, which will try to adopt a new biennial plan before the regular 2023 session adjourns on June 7, has enacted several initiatives in recent years to increase awareness at the Capitol about the tremendous gaps in income and wealth equality statewide.

“Information is powerful. Information guides us,” said Sen. John Fonfara, D-Hartford, co-chairman of the finance panel, who added that seeking more information about fairness should not signify a bias toward one solution or another. “It shouldn’t be seen as a sign that we’re coming after someone or some group.”

But Fonfara added that while some may feel Connecticut’s challenges are obvious, not everyone fully understands how robust are the economic opportunities some communities enjoy, or how severe poverty is entrenched in others.

Despite a commitment more than a decade ago to take regular assessments of the state and municipal tax systems to measure fairness, the legislature shelved the issue for years after the first-ever tax fairness study was completed in 2014.

And even though that incidence analysis found the poorest households effectively paid three times the share of their incomes to cover taxes than the wealthiest did, governors and legislators postponed follow-up studies four times in the next seven years.

A tax incidence analysis studies which groups pay taxes and how those burdens are shifted. For example, renters effectively pay some or all of their landlords’ property taxes. Gasoline distributors shift wholesale fuel tax burdens onto service stations, which pass the full cost onto motorists.

Progressive Democratic legislators pushed hard and won a mandate for a second study by the Department of Revenue Services, which was released in February 2022.

That analysis also found the poorest households paying three and four times that of the wealthiest.

But some questioned whether that report had been watered down and actually understated the problem.

When the 2014 report was prepared, DRS looked at the impacts of four taxes that weren’t included the second time around. And three of those four — levies on utilities, insurance and real estate transactions — routinely involve expenses that businesses shift onto households. The fourth was the Connecticut estate tax.

Revenue Services Commissioner Mark Boughton, who was appointed two years ago by Gov. Ned Lamont and who wasn’t commissioner in 2014 under-then-Gov. Dannel P. Malloy, said he statutes defining how fairness studies should be conducted didn’t mandate the inclusion of those other taxes.

Connecticut Voices for Children, a New Haven-based policy group pushing for progressive tax reform, expressed disappointment that more tax data wasn’t included in the report.

“While we appreciate the release of this statutory required report, it’s kind of like driving a car with not enough air in the tires … it gets us there, but not very well,” Connecticut Voices’ executive director, Emily Byrne, said shortly after the last study was released.

Fonfara said lawmakers don’t want any confusion with the next study, and any tax with a significant fiscal impact needs to be considered.

Byrne added her group is still reviewing the modifications the finance panel recommended for the next tax fairness study.

Lamont, a fiscally moderate Democrat who signed the tax fairness study delayed into law in 2019, has opposed financing tax breaks for the poor and middle class by raising taxes on the wealthy. The governor, a Greenwich businessman, has said he believes this would prompt rich taxpayers to flee Connecticut.

Lamont did propose the first income tax rate cut this year since the mid-1990s, and most of that relief — an estimated $300 to $600 per household — would be focused on the middle class.

But advocates for tax reform counter that an ever-increasing share of the state’s population is living paycheck-to-paycheck and far more relief than that is needed to stem the growth in poverty.