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Budgets and Taxes

How Connecticut's Proposed
Budget and Taxes Affects Us

The 2023 Fiscal Year ends this July and the Democrat administration claims that we will have a $3.2 billion surplus. Has fiscal responsibility finally arrived?  Let’s look at the facts.  After years of massive deficits, in 2017 a bipartisan agreement was reached to cap spending. That appears to be the driver of budget surpluses in recent years, along with an infusion of federal American Rescue Plan Act (ARPA) dollars. The 2023 surplus has also been a result of high inflation which boosted sales tax revenues, Corporation taxes, and withholding taxes. Three quarters this year saw additional federal grants in the revenue column, along with the last of the ARPA dollars. (Office of Policy Management) Other than moving $800 million outside the spending cap limit this year, the picture looks rosy.

But is this the whole story? Not by a long shot. Connecticut’s unfunded pension liabilities have been a disgrace for years, putting us near the bottom of pension funding charts. The last few budget surpluses, thanks to ARPA, have enabled infusions of cash to bring that indebtedness down to $39.5 billion. Additionally, this administration refinanced the pension funds three times in the last four years, pushing the debt burden onto Connecticut citizens in 2030 and 2040. Add to that our Capital bonded debt of $24.154 billion and we have a serious debt problem.

“State officials secured short-term security and less volatile finances for the foreseeable future by adding billions in long-term obligations to do it – a problem future generations of taxpayers may come to resent.” (Ct. Mirror, March 2022)

In this election year, the Lamont administration has decided to implement some of last spring’s Republican plan to reduce taxes.  That plan had called for a reduction in income taxes for low and middle income folks, as well as reducing our sales tax, and the diesel tax. It would also eliminate the meals tax, the new highway truck tax, and the income tax on annuities and pensions. Property tax relief would be expanded. The thinking was that the nearly $1 billion windfall in revenue due to high inflation should be returned to families that need relief from inflation. (Senate Republican Leader Kevin Kelly) The administration decided to keep the highway truck tax that began Jan. 1 and the increased diesel tax. They are lowering the income tax rate for middle income earners from 5% to 4.1/2% and for lower income workers from 3% to 2% while increasing tax credits for the working poor. The cost of these tax cuts is projected to be $500 million and, with no proposed budget cuts, the hope is that there will be another inflation windfall in revenue at the end of FY 2024. They claim there will be “no new taxes.”

Well, not exactly. There are some new taxes proposed as well as increases in existing taxes.  There is a proposed statewide property tax of 2 mills on both commercial and residential property at assessed value of $1.5 million or more. This would not only affect wealthy homeowners, but also business owners and landlords of multifamily housing.  Rents would necessarily increase, creating further hardship for renters in inflationary times. There is HB 5990 to study the feasibility of mileage based user fees on us when we use our highways, and they would like to increase our property tax valuations from 70% to 75% and add 3 mills to our tax liability, unless individual towns lower their mill rate by 3 mills.  Should these ideas be implemented, Connecticut residents will only suffer.

Proposed increases in existing taxes cannot be overlooked. An Act Increasing the Rate of the Corporation Business Tax from 7 ½% to 11 ½% will not entice businesses to locate in Connecticut.  Neither will keeping the “temporary” business surcharge of 10%. The gasoline tax holiday is set to expire in June, which will feel like a tax increase to all of us still struggling with high gas prices. Between the new truck tax, the higher diesel fuel tax, and a resumed gas tax, we can expect local goods and services to cost us more than ever. And finally, there is a proposed 5% increase in the Capital Gains Tax and income from dividends and interest. The Yankee Institute has a large chart of Connecticut’s 344 Sources of Revenue. The bottom 200 of these revenue sources are mostly nuisance fees that account for 0.22% of Connecticut’s revenue. (Does it cost more than that to collect these fees?) So while the CT Inside Investigator reports that Connecticut residents have the second highest per capita income in the nation, it is no wonder that so many of us feel poor!

In February 2023 the Governor’s Economic Report noted that our Gross State Product was up 4% in 2022, but that still trailed the rest of New England. Its forecast is for flat economic growth going forward with negligible to flat job growth in the coming years. Connecticut never fully replaced the jobs lost in the 2008 recession and, as of August 2022, we’ve only recovered 86.1% of the jobs lost during the pandemic.  Nationally, the country saw a full recovery of pandemic lost jobs by July, 2022.  Our labor force today is 51,600, smaller than it was in 2020. (CT Mirror)

Our one party control of the state has had a negative attitude towards both wealth and business for a long time.  They raise corporate taxes and have a surcharge besides.  They mandate high hourly wages, time off, and shut-downs during Covid without concern for how a business would survive. So corporations move to friendlier states.  General Electric moved their headquarters a few years ago, taking 800 jobs with them.  Now LEGO is moving out and Pepperidge Farm plans to move their headquarters soon. High taxes and redistribution of wealth schemes cause corporations and wealthy citizens to flee.  The Pioneer Institute in Massachusetts in a 2021 study found that Connecticut’s tax policies of 2009, 2011, and 2015 caused a loss of $12 billion in adjusted gross income between 2012 and 2018, and 64% of that was from those earning over $200,000 per year.

The outlook does not have to be so bleak. Instead of offering subsidies to companies to entice them to come to Connecticut, which has failed, let’s try reducing corporate tax rates and regulations to be competitive with Florida, Texas, Indiana, etc.  Get rid of the nuisance fees that may cost more to collect than add to our coffers.  Eliminate redistribution of wealth schemes for all but the truly needy, get out of the housing business, and stop subsidizing lobbyists such as Desegregate CT. Today’s officials need to re-think their ideology…..or perhaps we need a change in politicians. 

 If Connecticut becomes a low-tax welcoming state, companies will come, jobs will proliferate, and we all will thrive. 

Linda Lavelle
Staff Writer
February 23, 2023