‘Voices’ for Economic Ignorance and Higher Taxes

April 17, 2008

“Connecticut Voices for Children,” the media-savvy liberal lobbying group, has issued its latest look at the “regressive” nature of the Nutmeg State’s taxes. “Who Pays?” asserts that the “state and local tax system requires families with the least to pay proportionately more in tax than those with the most.”

It’s difficult to parse the report, stuffed as it is with flawed assumptions and glaring oversights. For example, the data it uses are based on a yet-to-be-released paper by a national left-wing group, The Institute on Taxation and Economic Policy. What we do know about ITEP’s methodology isn’t encouraging. “Voices” admits that elderly households are not included in the research -- not a sound exclusion, given that over 14 percent of Nutmeggers are over age 65.

But even if one accepts the document’s claim that Connecticut’s lower- and middle-class residents pay a greater portion of their incomes to state and local government than their wealthier counterparts, three out of the four prescriptions “Voices” proffers to produce a “fairer” tax system would have negative consequences.

Hiking “the state income tax on those most able to pay it” is, quite predictably, one recommendation. But contrary to the spin of Connecticut’s leftists, the income tax is hardly “flat.” Generous credits built into the tax tables ensure that low-wage workers pay substantially less of their incomes to the state treasury. For example, a single “McWorker” earning a paltry Connecticut adjusted gross income (AGI) of $21,500 is taxed at a rate of 0.9 percent. A single software engineer with a Connecticut AGI of $64,500 is taxed at 4.7 percent. That’s three times the income, but over five times the tax burden. The state’s own data show that the top 5 percent of income-tax filers generate as much revenue as the bottom 95 percent. If that isn’t “progressive” taxation, what is?

In addition, tens of thousands of Connecticut income-tax returns stem from business-related revenue, not wages or salaries. There are significant tax advantages to establishing an economic enterprise as a partnership, sole proprietorship, or S-corporation. The Tax Foundation notes that between 1980 and 2002, the number of these entities “nearly doubled.” An income-tax hike is thus a business-tax hike.

“Voices” wants the loot that would allegedly flow from higher taxes devoted to a favorite fetish of Nutmeg State liberals: 50 percent state funding of K-12 government schools. More subsidies from Hartford, it believes, “would reduce the pressure on our local property tax.” A likelier scenario is that expenditure-happy local politicians would spend their newfound largesse on anything but tax relief.

A state-level “earned income tax credit” is the report’s third suggestion. The measure, to be modeled on the quirky federal “refund” for taxes low-income workers never had to pay, would foster more dependency on government -- something Connecticut has quite enough of already. Besides, “Voices” itself advocates a better strategy. “Connecticut’s personal exemptions for heads of household and married couples filing jointly,” it observes, “have not been adjusted upward since the income tax was adopted in 1991.” Increasing the threshold at which residents start to pay income tax would be a small, but welcome, step toward relief.

Sadly, that’s the only real tax cut “Who Pays?” has to offer.

For owner-occupied housing, only New Jersey and New Hampshire have higher property-tax burdens than Connecticut. “Voices” suggests no viable solutions to the state’s crushing property taxes, which are driven by excessive public-employee compensation and runaway spending on inefficient government schools.

There’s also nothing in “Who Pays?” about lowering the state’s motor-fuel levies. With a sky-high gasoline tax and a gross-receipts tax on petroleum products, Connecticut has the highest tax at the pump in the nation. How much longer will Nutmeg State liberals remain silent about the urgent need for energy-tax relief? (Cutting electricity fees and charges would also help.)

And while “Voices” may not find it relevant, some of the most “regressive” taxes are placed on cigarettes and alcohol. More poor folks smoke than affluent people, so tobacco taxes fall disproportionately on lower-income households. And the portion of income the poor spend on liquor is about 10 times the share spent by the highest earners. Hey, liberals -- how about repealing Connecticut’s alcohol taxes?

Instead of pitting one income group against another, the Nutmeg State’s advocates for tax “fairness” would be wise to turn their attention to how high -- and rising -- the state-local tax burden is for everyone in Connecticut. Then all of the state’s long-suffering families, workers, and entrepreneurs might receive the relief they deserve.

D. Dowd Muska is a writer, commentator and public-policy researcher. He can be reached at muskacolumn@cox.net.

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