HARTFORD – Democratic State Senate President Martin Looney (D-New Haven) and Finance, Revenue & Bonding Committee Senate Chair John Fonfara (D-Hartford) today called for Connecticut to address the long-standing underfunding of cities and Black and brown communities through a new “Equitable Investment Fund.”
To fund this investment, the Senate leaders aim to overhaul Connecticut’s fundamentally unfair tax system and increase taxes on millionaires.
Generations of a lack of investment in underserved communities have exacerbated income inequality, lack of opportunity, and concentrated poverty. The Democratic leaders said the legislative and executive branches of government should not kick the can of tax reform down the road this year yet again and should instead fulfill the promises made during the Black Lives Matter movement of 2020.
The Equitable Investment Fund would focus investments in underserved communities and address income inequality. The Equitable Investment Fund would join 10 other targeted budget funds, including the Special Transportation Fund, Budget Reserve Fund, Insurance Fund, Banking Fund, Consumer Counsel and Public Utility Control Fund, Workers’ Compensation Fund, Mashantucket Pequot and Mohegan Fund, Regional Market Operation Fund, Criminal Injuries Compensation Fund, and Tourism Fund.
“We must address long-standing underfunding in our cities whose low- and moderate-income residents struggle under an inordinate tax burden,” said Sen. Looney. “To address these inequities, which were exacerbated by the COVID-19 pandemic, it is only right that those of great wealth pay more for the benefit of Connecticut as a whole. This past Juneteenth I stood with my Senate Democratic colleagues to support those protesting racial and economic injustice, with the promise that our words would be backed up with policy. We cannot continue the status quo in Connecticut.”
“We must address the realities of our inner cities in Connecticut,” said Senator Fonfara. “We have communities that have been disinvested in decade after decade, and we see the effects of that. More poverty, children without adequate educational opportunities, and disproportionate property tax burdens that strangle business growth. We cannot say ‘Black Lives Matter’ and then not invest in our inner cities and Black and Latino communities.”
Connecticut’s existing tax structure of nine different types of taxes is weighted heavily against poor and middle-class taxpayers while benefitting the wealthiest residents in the state.
Using the 2014 tax incident report compiled by the state Department of Revenue Services which analyzes the impact of the nine different taxes levied on Connecticut residents –property, personal income tax, sales and use, excise, gross earnings, corporate, insurance, gift and estate, and real estate conveyance – Democrats showed that 20.3% of the total $17.4 billion in various taxes collected to fund the state budget that year was contributed by the lowest 10% or “decile” of income earners – 725,000 households making an average of less than $48,000 a year.
One-third of all the tax revenue collected in Connecticut that year came from the one million state households earning less than $74,400 a year. Nearly two-thirds (65.3%) of Connecticut’s tax burden was paid for by households making under $182,000 a year.
On the other end of the income spectrum, the DRS report shows what the top two “deciles” contributed to state revenues that year: 3,646 Connecticut households who earned between $2 million and $13.2 million in 2014 contributed just 5.6% of all the state tax revenue, while the top 357 state households earning an average of $42 million a year contributed even less – just 5.4%.
Under the proposed income tax and capital gains tax changes passed by the Finance Committee in April, these top two “deciles” combined would still only contribute 14.2% of all state revenues, up from 11%.
Tax burden comparison chart with proposed tax changes
Report: https://portal.ct.gov/-/media/DRS/Research/DRSTaxIncidenceReport2014pdf.pdf
The report, they say, confirms that Connecticut’s annual, combined revenue stream of property taxes, income taxes, sales taxes, excise taxes like those on gasoline, real estate conveyance, insurance, gift and estate, corporate and gross earnings taxes fall most heavily on those who can least afford to pay them, effectively making Connecticut’s so-called ‘progressive’ income tax of seven different tax brackets only a modest improvement on the original 4.5% flat rate tax adopted in 1991, which reduced capital gains taxes on the most wealthy.
The Democrats’ demand for more tax fairness comes as the legislature’s Finance Committee has already proposed one of the largest middle-class tax cuts in state history: a proposed new state income tax credit for families with children that would provide $150 million in tax breaks in 2022, and $300 million in tax breaks in 2023, and even more after that.
The Finance Committee also wants to raise the income tax credit for working poor families from 23% to 40% of the federal Earned Income Tax Credit, bringing them another $77 million in tax relief each year, and in the years to come.
Meanwhile, the Appropriations Committee is seeking to increase state aid to cities and towns by hundreds of millions of dollars a year through larger Education Cost Sharing (ECS) grants and PILOT (Payment in Lieu of Taxes) payments to communities struggling with anemic grand lists and those with a superabundance of tax exempt property, as well as increasing funding by $30 million to $50 million a year every year into the future for Connecticut’s private-sector nonprofit social service agencies.
To pay for these tax breaks and investments in cities and towns to help control local property taxes, Democrats on the Finance Committee are proposing two new taxes on Connecticut’s wealthiest residents, as well as a proposed digital advertising tax on Google and Facebook, whose 2020 revenues rose between 15% and 20% to $181 billion and $86 billion, respectively.