Republican Betsy McCaughey announced her candidacy for governor by promising to end Connecticut’s income tax. This is nothing new for Republican candidates; Rob Stefanowski pledged to reduce the income tax in 1998, as did Gov. John Rowland, who never proposed a budget significantly reducing income taxes.
Proposing to eliminate the state’s income tax is, to put it charitably, laughable. It is the state’s primary revenue source, providing about $13 billion of the $27 billion state budget. Given these numbers, can anyone take McCaughey seriously?
Digging deeper into the issue of taxation in Connecticut, one might well cry, not laugh. While we all recognize that taxes are the price of a decent society, few of us enjoy paying taxes. It’s not that we resent contributing to the common good; if that were the case, we wouldn’t contribute to charities.
No, the problem is that we think we are being taxed unfairly and are paying more than our fair share. And that is indeed the case for the working and middle classes of Connecticut: we pay a significantly higher tax rate than the richest residents. Connecticut’s system of taxation unjustly burdens its poorest citizens.
Taxation is fair when those who are most able to pay—those who benefit the most, the richest—pay the largest share. If tax rates increase with income and wealth, taxation is progressive. If tax rates decrease with income and wealth, taxation is regressive.
Are Connecticut’s state and local taxes progressive or regressive? The Department of Revenue Services answered this question, analyzing state and local tax data from 2011-2020 in its Tax Incidence Study (TIS). Income taxes generated 33% of Connecticut’s state and local revenues. Property taxes generated the lion’s share of total tax revenues, 38.2%. Sales taxes generated 15.3%.
Sales taxes are the most regressive. The wealthy pay more in sales taxes than the poor, of course, because they consume far more. But although the sales tax rate is the same for everyone, the burden of sales taxes is shifted unfairly onto the poorest among us, because they spend a larger percentage of their income on taxable goods and services.
Income taxes are more progressive because the tax rate increases as income rises. Connecticut’s income tax is its fairest form of taxation because the rate increases—from 3% on the first $10,000, to 5% on the next $40,000, to 5.5% on the next $50,000, and so on up to 6.99% on income over $500,000.
The TIS analysis divides the state’s population into ten bands, each producing 10% of Connecticut’s total personal income. It takes more than 883,000 of the poorest people in Connecticut to generate 10% of Connecticut’s total personal income. Nearly 316,000 of the next poorest people generate 10% of Connecticut’s total personal income. A mere 478 of the richest residents generate 10% of Connecticut’s total personal income.
Now you might say, “Big deal. We already knew that Connecticut has both dirt-poor and fabulously wealthy residents.” Well, here’s what’s new: the TIS calculates the tax burden on each group. Its findings are shocking. The poorest group pays 26.7% of Connecticut’s total tax revenues, an effective tax rate of 39.9%, according to the TIS. The richest group, although they individually pay far more in taxes, collectively pay only 4.9% 0f Connecticut’s total taxes, an effective tax rate of only 7.3%.
So, if you’re upset at paying your Connecticut income tax, maybe you should reserve some of your outrage for the fact that the poorest of us are paying an effective tax rate more than five times that of our richest neighbors.
Connecticut is home to 120 residents with a net worth over $100 million, 15 of them billionaires with collective assets exceeding $86 billion. The TIS demonstrates that although they’re not getting a free ride, they are certainly enjoying a reduced fare. It is patently unjust for them to pay lower tax rates than the rest of us working stiffs and retirees.
What kind of tax reform is needed? A wealth tax would be the most progressive form of taxation because it is based on total assets, ensuring that those with the most resources contribute their fair share.
You might think that as a tax on wealth, property taxes would be progressive. Not so. Working class families with almost all of their assets in their homes are accordingly taxed on almost all of their wealth. Similarly middle-class families with modest homes and retirement funds or investment accounts worth the same amount are taxed on 50% of their wealth. But an individual with a net worth of $100 million living in a $10 million home is taxed on only 10% of his or her wealth.
And the inequity is even worse for young families just starting out. If they have no investments beyond a $300,000 home just purchased with 20% down, they are taxed on 350% of their wealth. They have only $60,000 of equity, yet their property taxes are assessed on 70% of their home’s value, $210,000.
Connecticut taxes the wealth of those with relatively few assets, while exempting the wealth of the richest 1% and one-tenth of 1%. If McCaughey and her fellow Republicans were concerned about justice and fairness, they would be talking about this shameful inequity and proposing plans to tax the rich who both benefit the most from our society and can best afford it. The discussion should not be about blanket tax cuts; it should be about creating a just system of taxation.
Unfortunately Democrats, except for Elizabeth Warren and Bernie Sanders on the national scene, are also mostly silent on the issue of tax inequity. The TIS was published in February 2024. Had you heard of it before you read this article?
Here in Connecticut, we do have one notable exception—Joshua Elliott, who is challenging Gov. Ned Lamont for the Democratic nomination. He has said “Connecticut’s tax system is rigged against working families. A nurse or teacher pays an effective state and local tax rate of around 20%, while a wealthy hedge fund manager pays closer to 8%.”
Perhaps with his candidacy the debate over taxes will shift from blanket reductions to fairness in sharing the tax burden. But don’t get your hopes up. More likely the Democratic party regime will short circuit this discussion, as it did during the 2024 presidential campaign, to keep the wealthy donors who fill their coffers on board.
Dr. Joseph Gerics is a retired Catholic school educator and member of the Stratford Democratic Town Committee.