We retired Tax Justice Blog in April 2017. For new content on issues related to tax justice, go to www.justtaxesblog.org
In a year when most state leaders across the country embraced an anti-tax, cuts-only approach to addressing short- and long-term budget shortfalls, Connecticut lawmakers agreed to a budget for the current fiscal year that addressed the state’s deficit crisis with a balance between spending cuts and (if you can believe it) significant new taxes.
Not just new taxes that fall heavily on the working poor, which are politically easy but fiscally insignificant (and far more common that you’d think), but new taxes on the rich, which are often political suicide even as they are fiscally smart.
Starting yesterday, August 1, high income taxpayers started seeing more taxes withheld from their paychecks, and Senate Minority Leader John McKinney, (whose party opposed the package) wailed, “It is a sad day when state government decides to reach back in time to garnish the wages of our hard working residents because it can’t get its own fiscal house in order.”
But wait. Middle-income households with taxable incomes (not salaries, but adjusted gross income) under $100,000 ($50,000 if single), will not see any change in their withholding. And, as Connecticut for Children’s Voices points out using ITEP data, even though the tax changes boosted fairness by reducing taxes for low-income residents and increasing them for wealthy ones, the state and local tax system remains highly imbalanced: the wealthiest Connecticut households still only pay on average 5.5 percent of their incomes in state and local taxes while the poorest 20 percent pay 11.4 percent of their incomes.
The other, mostly progressive, tax package features kick in this summer, too, including sales tax changes that took effect in July.
The Connecticut budget is a national model. It introduces a program (Earned Income Tax Credit) repeatedly proven to boost economic activity, and it increases taxes on those in the highest brackets to help restore revenues needed for core services and municipal budgets. We wish the state well, and will check back as the results begin to take effect.