New Haven Register (New Haven, CT)
Don’t confuse tax breaks with real reform
Obviously, fairness is in the eye of the taxpayer and that’s why real change is hard to come by. The big debate about higher taxes on the rich, an active argument in the state legislature as we speak, comes down to whether the targets of those higher levies will pick up and move to Florida or New Hampshire.
It’s an election year and we have a very large and growing state budget surplus here in Connecticut, so that means tax breaks.
Boosting the property tax credit, capping the car tax, speeding up exemptions for pensions and annuities, expanding student loan credits, enacting a child tax credit, cutting the sales tax temporarily; those are all on the table, and of course, lawmakers unanimously passed a 3-month gasoline tax holiday on Wednesday.
In a moonshot, unicorn possibility, could we see actual cash rebates? Nah. But when it’s all said and done, the state will enact about $450 million in state tax relief by May 4. That’s about $250 per household.
To truly change the way state taxes affect the economy and family budgets, we would need to reform the state tax structure. Make no mistake: This ain’t that.
In fact, some of these tax breaks are loud windowdressing. The property tax credit income limits are set too low to help a lot of middle-class families. And cuts in the in-your-face taxes such as gasoline and the sales tax, despite the rhetoric, don’t add up as fast as less-glitzy income tax credits. Do the math, you might be surprised.
Take the gasoline tax break. The state will now suspend the hated, 25-centper-gallon tax at the pump for three months starting April 1. Your payoff amounts to about one sandwich every two times you fill up your car with 15 gallons.
The typical household will see a break of about
$50 over the three months — a whole picnic! Yes, House Speaker Matt Ritter conceded, as my colleague Julia Bergman reported, the gas tax break could be seen as an election-year gimmick “if this were all we were doing.”
Lest you think it’s a free lunch, remember, that $90 million in gas taxes the state will not now collect has to come from someplace; in this case, a surplus in the state’s transportation fund, in part because we use regular sales tax revenues to backstop transportation spending.
And we need move money around carefully, so as not to count federal pandemic relief funding in the surplus, as the Feds say the state can’t hand any part of that $2.9 billion to taxpayers.
In the big picture, we’re
talking about slight trims on the edges here, not a wholesale change in the way the state raises money. Connecticut cities, towns and the state government raise about $27 billion a year in taxes, mostly from households.
So that $450 million in breaks, if it happens, totals about 2 percent of the state and local take from individual filers. Since rich households pay a hefty share of taxes, folks in the middle class — depending on what that means — could see their state and local tax liability drop by more than 2 percent, but probably not more than a few percentage points.
Gov. Ned Lamont wants to increase the property tax credit — a deduction from your state income tax if you own a house, an apartment or a vehicle — from $200 to $300; and he wants to expand that to an extra 500,000 people, so more
filers are eligible.
It’s still too low a threshold under Lamont’s plan. A couple making $65,500 each would not qualify; that needs to be higher. And state House Republicans also want that property tax credit jacked up to $500.
But Senate Republicans have a different idea. In the name of immediate help for the strapped middle class, they want to lower the sales tax from 6.35 percent to
5.99 percent, and lower the prepared meals tax (restaurants and that deli sandwich you bought with your gas tax savings) from 7.35 percent to 5.99 percent. Those cuts would last a year and would cost the state $300 million in lost revenue.
Quick, which idea helps you more? The breaks on sales taxes, prepared foods and gasoline combined, or the property tax credit if you aren’t now eligible?
If you said the sales,
gasoline and food taxes, you’re probably wrong. Here’s the math: For you to save $300, you would need to spend $50,000 on taxable goods and services PLUS $10,000 on prepared meals over the next year, PLUS buy 80 gallons of gasoline in the next three months.
You might pump that 80 gallons but you’re most likely not hitting those other two spending targets. Choose the property tax credit!
So, when do we see real tax reform? By that I mean changes that make the whole tax structure fairer to that range of hard-hit households making less than, say, $99,000.
Obviously, fairness is in the eye of the taxpayer and that’s why real change is hard to come by. The big debate about higher taxes on the rich, an active argument in the state legislature as we speak, comes down to whether the targets of those higher levies will pick up and move to Florida or New Hampshire.
As Lamont and the Republicans say, correctly, we would be crazy to raise taxes on anyone when we have surpluses, even if it would be fairer. Not gonna happen this year or next year.
Some groups have proposed massive overhauls in the system, involving small increases in taxes on the rich, small givebacks for the state retirees with outlier pensions well into six figures a year; changes in collective bargaining rules and faster paybacks of state pension liabilities. We’d all be better off in the long run but the political will isn’t there. Not even close.
There is hope for slight reform on the property tax side. Lamont wants to cap car tax payments at 29 mills, or $29 per $1,000 of assessed value, because the people living in the poorest cities pay the highest rates. If you have a Honda Accord worth $18,000 and you live in Bridgeport, you pay $782. In Greenwich for the same car (yeah, I know, it’s their kids’ clunker), you pay just $208.
Leveling that would be true reform. But let’s look deeper at the numbers. If you live in, say, Stratford, you’ll see a tax break of
$192 a year on that Accord under Lamont’s plan.
Great! But guess what — your rich neighbor who just bought an Audi A4 will see her tax bill slashed by $484.
And that money has to come from somewhere. It could be from you, in the form of some other tax. The moral: Tax breaks from a surplus are one thing, true reform is something else altogether.