Connecticut Poor Pay More Income On Taxes Than Rich

NEW HAVEN — In the country’s richest state, the rich must certainly pay a greater share of their income in taxes than their economically disadvantaged counterparts, right? Not true, according to a state-based study released this week.

The new report shows Connecticut’s middle class and poor families pay a higher percentage of their income in state sales and local taxes than the wealthiest families. The report, “Who Pays? How Our State and Local Tax System Burdens Connecticut’s Poor and Middle Class,” by Connecticut Voices for Children, is based on an analysis of state and local tax data.

The report says the wealthiest Connecticut families pay 4.7 percent of their income in state and local taxes. Middle-class families pay 9.6 percent of their income in state and local taxes. The report shows the poorest 20 percent pay 10.9 percent.

Opponents of increasing taxes for Connecticut’s wealthiest families city state figures show the top five percent of Connecticut taxpayers pay more in state income taxes than the bottom 95 percent combined.

Among the study’s other findings:

*Low- and middle-income families pay a relatively larger share of their incomes in sales and property taxes, while higher income families pay a larger share of their incomes in income tax. In total, however, the state’s wealthiest families pay a much smaller share of their income in state and local taxes than do its middle- and lower-income families. Why? Connecticut’s income tax rates are not progressive enough to offset the regressivity of the sales and property taxes.

*Some assert that Connecticut’s wealthiest families pay more than their fair share of income tax, citing the share of total state income tax revenues that come from wealthy families.

*While Connecticut’s wealthiest residents do pay a large share of Connecticut’s total income taxes, this reflects the fact that they report a large share of the total income in the state, not that they are taxed far more heavily on that income. For example, in 2006, the top one percent of taxpayers in Connecticut (those reporting income of $750,000 or more) paid 33 percent of the state’s total income taxes, but also reported 31 percent of the state’s total income. Thus, their income taxes were roughly proportional to their income.

The report is released as the economy is slowing, the state budget surplus for FY ‘08 continues to decline, and structural deficits are projected for the years ahead. To help in alleviating the unfairness of the state and local tax system and to ensure that the state has sufficient revenues to fund essential programs to support middle-class and low-income families and keep the state economically vibrant, Connecticut Voices for Children recommends that state lawmakers:

*Provide additional state aid to Connecticut’s cities and towns to reduce Connecticut’s relatively high property taxes. Providing full funding for the Payment in Lieu of Taxes program and increasing the state’s share of K–12 education funding to close to 50 percent would reduce the pressure on local property tax; reductions in local property tax would provide particular benefit to middle-income families and to small, start-up businesses.

*Adopt a state earned income tax credit (EITC) and increase Connecticut’s personal income tax exemptions. An increase in the personal exemptions to keep pace with inflation would reduce the tax burden on many families. A state EITC, now under consideration by the Connecticut General Assembly, would also help to reduce taxes for low-income families.

*Increase the income tax rate for the state’s wealthiest families. Adopting a top income tax bracket of six percent for married couple families over $200,000 and single filers over $100,000 would generate an estimated $470 million in additional revenue, while affecting only seven percent of Connecticut taxpayers.

“Our state and local tax system is worsening, rather than alleviating the growing income gaps in our state,” said Douglas Hall, associate director of research at Connecticut Voices for Children and co-author of the report. “We need a tax structure that is more fair to families and we need the revenues to support programs that can help to close these economic gaps. Our proposed changes would help achieve both goals.”

“The temptation, as the economy slows and state revenues begin to slump in an election year, will be to cut back on public investment rather than raise taxes. Yet our middle- and lower-income families enter this new recession in far worse shape than the last,” said Shelley Geballe, president of Connecticut Voices for Children and co-author of the report. “Increasing the income tax on our wealthiest families so we can help maintain the programs and services all our other families need to weather this storm is not only the fair thing to do, but the wisest course of action.”

(The Associated Press contributed to this report.)