Advocates Propose $600M Tax Credits For Working Families

This year, anti-poverty advocates’ rallying cry at the state Capitol will be cutting families a break on their taxes by asking millionaires to pay up.

That pitch to make Connecticut’s tax system less regressive was made at New Haven-based Connecticut Voices for Children’s annual budget forum Wednesday morning at the state Capitol building in Hartford.

By raising income taxes on those taking home over $1 million each year and limiting the estate and gift tax exemption to $3.6 million, the state could redirect about $600 million to working-class and middle-class families through two tax credits, two experts argued at the conference.

(Click here to download CT Voices’ full 74-page tax proposal.)

Across the country, inequality has worsened over the past half-century. Beginning in the mid-1950s, the very wealthiest Americans started earning a larger share of annual income than the bottom half of the country.

Connecticut has been even more starkly divided between rich and poor, according to the Economic Policy Institute, a left-leaning think tank.

With ​“one-percenters” in Fairfield County raking in an average of $6,291,000 every year, the state’s top earners are making 37.2 times as everyone else’s average paycheck. The state ranks as the third most unequal in the country.

Those divides are only worsened by the state’s tax system, which takes a few dollars from each pay-stub, rent check, shopping receipt and insurance premium.

The state’s system disproportionately burdens poorer families with property taxes, sales taxes and business taxes, and lets richer families off easy with its income tax and estate tax.

For example, a family making $40,000 will pay a 23.6 percent effective tax rate, leaving it with $30,552 in post-tax income.

A middle-class family making $100,000 will pay a 13.3 percent effective tax rate, leaving it with $86,730 in post-tax income.

And a wealthy family who makes $1.5 million will pay a 7.4 percent effective tax rate, leaving it with $1,390,000 in post-tax income.

While top earners often say that they’ll pick up and move elsewhere, the state could start charging more, argued Patrick O’Brien, a research and policy fellow at CT Voices. Even though Connecticut levies some of the most expensive taxes, those rates don’t look so high when measured against how much residents earn, he said.

“Rather than resolve the problem of rising income and wealth inequality, Connecticut’s regressive tax system exacerbates it by disproportionately taxing the groups whose share has been declining for several decades,” O’Brien said.

“The most pressing tax issue is not the overall tax burden,” he added. ​“Instead, the most pressing issue is the distribution of the tax burden.”

O’Brien suggested adding two more brackets with higher income taxes to the system that currently maxes out at $500,000. He said that income taxes on an individual’s annual wages could kick in at 7.99 percent above $1 million and 8.49 percent above $5 million.

He added that the state could charge even higher rates for non-wage income, usually from stock market earnings, at 9.99 percent above $1 million and 10.49 percent above $5 million.

Those increases would still be less than the top marginal rates across parts of the Northeast, like 10.75 percent over in New Jersey, 8.82 percent over in New York, and 8.75 percent in Vermont, though they would be higher than 7.15 percent in Maine, 5.99 percent in Rhode Island, and 5.05 percdent in Massachusetts.

O’Brien also suggested undoing a suggested weakening of the estate and gift tax. Currently, that tax kicks in when a person is set to inherit more than $3.6 million, but the exemption is scheduled to increase to $11.4 million.

He added that state could also repeal a cap on the total payment for this tax, currently set at $15 million.

Again, that would mean the tax would kick in later than other parts of the Northeast, like $1 million in Massachusetts, $1.5 million in Rhode Island, $2 million in New Jersey and $2.8 million in Vermont, though it would be lower than $5.3 million in New York and $5.7 million in Maine.

All that extra money from Connecticut’s millionaires, which CT Voices pegged at around $600 million, could allow the state to build out two more tax credits, said Meg Wiehe, the deputy executive director of the Institute on Taxation and Economic Policy. Since the Clinton presidency, those credits have been seen as a bipartisan measure to lessen inequality.

Wiehe said Connecticut could double the Earned Income Tax Credit. Since 2011, the state has tried to match around 30 percent of this federal credit, which is available for families who make less than $51,567, but it could raise that credit to half of what the federal government gives back. That would give families a refundable tax cut of between $720 to $858, meaning they could use it to pay off other federal taxes.

And she said it could create a Child Tax Credit, which is available on federal income tax returns for families who make less than $110,000, by matching 30 percent of what the federal government gives back. That would give families another tax cut of between $484 to $933.

“Many families are struggling to keep up with the rising cost of living,” Wiehe said. ​“We need multi-pronged, bold solutions to make the economy work for everyone, not just those at the top.”

A spokesperson for Gov. Ned Lamont — who argues that increasing taxes on the wealthy ​“punishes success” — offered a cold reaction to the Voices proposal. Read about that in this story by the CT Mirror’s Keith Phaneuf.