In­come tax’s end to help the few

The Norwalk Hour - - SUNDAY BUSINESS - Dhaar@hearst­medi­act.com

We haven’t looked closely at who would ben­e­fit if Bob Ste­fanowski’s vow to elim­i­nate the state in­come tax were to come true, be­cause it can’t hap­pen.

But just for yucks, let’s do the num­bers. Spoiler alert: You prob­a­bly don’t run into the big win­ners at the su­per­mar­ket.

Based on a 2014 state study of 2011 taxes, with up­dat­ing anal­y­sis, it ap­pears that fewer than 400 fam­i­lies would reap an av­er­age of at least $3.6 mil­lion each if the per­sonal in­come tax were to dis­ap­pear. That’s what Ste­fanowski, the Repub­li­can nom­i­nee for gov­er­nor, claims he would make hap­pen over eight years.

Those house­holds pay an es­ti­mated $1.3 bil­lion, which equals two-thirds of all state school aid to cities and towns. This tiny klatch of earn­ers pulls in yearly in­comes start­ing at around $15 mil­lion and go­ing much, much higher from there.

Now let’s jump one level down the eco­nomic food chain. The top 4,000 tax­pay­ers, or about one-quar­ter of 1 per­cent of house­holds, would see breaks av­er­ag­ing at least $600,000 each — and prob­a­bly a lot more. That group makes at least $2 mil­lion a year, in most cases far more than that.

Their $2.4 bil­lion would al­most pay the state’s en­tire Med­i­caid out­lay — Husky-cov­ered chil­dren and all.

It’s a lot of big num­bers and it all comes down to this: When you hear Ste­fanowski say he wants to elim­i­nate the in­come tax, what he’s say­ing is, he wants to give a gar­gan­tuan break to the very rich and, in ex­change, squeeze state ser­vices.

How big a share do the rich pay? In 2011, the year the state De­part­ment of Rev­enue Ser­vices stud­ied in depth, the top 3.6 per­cent of house­holds paid 45 per­cent of the en­tire per­sonal in­come tax. Those were peo­ple mak­ing at least $287,000 back then.

And there is no ques­tion that the in­come thresh­olds, and the to­tals paid by the very rich, are sig­nif­i­cantly higher now.

Elu­sive mid­dle-class ben­e­fits

Of course, all Con­necti­cut res­i­dents who pay the tax would ben­e­fit, in the range of $3,500 for typ­i­cal fam­i­lies earn­ing $75,000 to $95,000 a year, for ex­am­ple. That would be a nice break if it could hap­pen with­out those same fam­i­lies kick­ing in huge in­creases some­place else, start­ing with their lo­cal prop­erty taxes, along with mas­sive cuts in state ser­vices.

But it can’t hap­pen. There’s a fake de­bate in Con­necti­cut about whether Ste­fanowski can elim­i­nate the in­come tax with­out in­creas­ing other taxes. He says it would boost the econ­omy, but that’s like say­ing I could fly to the moon if I ate enough calo­ries.

There’s not a whit of sci­ence be­hind it.

That’s what Demo­crat Ned La­mont has been say­ing, and his look at the num­bers raised his hack­les.

“This isn’t just voodoo eco­nomics and far-right think­ing. It’s morally wrong,” La­mont said in a writ­ten state­ment Fri­day. “Bob will give just 300 peo­ple more than $1 bil­lion in tax breaks each year. For every­one else, that’s go­ing to mean huge lo­cal prop­erty tax in­creases, ex­tra­or­di­nary cuts to schools and class­rooms, the end of health cov­er­age for peo­ple across the state, an in­fras­truc­ture that keeps crum­bling, and more.”

Ste­fanowski’s cam­paign stuck by its claim Fri­day that end­ing the tax would help tax­pay­ers broadly. Ken­dall Marr, his spokesman, said the plan “would put roughly $5 bil­lion

dol­lars a year back in the hands of the tax­pay­ers in the bot­tom 3 brack­ets alone.”

”Ned La­mont, who in­her­ited tens of mil­lions of dol­lars, doesn't un­der­stand how much that would mean for our hard­work­ing mid­dle-class fam­i­lies, but Bob Ste­fanowski knows that tax re­lief will make a huge dif­fer­ence for fam­i­lies try­ing to pay their heat­ing bills, make a down pay­ment on a car, or in­vest in their re­tire­ment,” Marr said in a writ­ten state­ment.

I did some math us­ing two meth­ods. In the in­come tax, the ma­jor cut Ste­fanowski wants to make, the bot­tom three brack­ets — those mak­ing un­der $100,000 — would re­ceive about $2 bil­lion. Adding the next bracket, up to $200,000 a year, would bring it up to about $3.2 bil­lion.

Keep the rich!

Ste­fanowski is right that Con­necti­cut spends and taxes too much. We all get

that. But it’s not a Repub­li­can or Demo­cratic idea. The prob­lem is not cur­rent spend­ing, it’s ris­ing debt, health care and pen­sion costs from long-ago prom­ises made by both par­ties.

Take the in­come tax in­crease in 2015, for ex­am­ple, when the top rate moved from 6.7 per­cent to 6.99 per­cent. For all the blus­ter, for all the na­tional me­dia about Gov. Dan­nel P. Mal­loy driv­ing peo­ple out, that in­crease gen­er­ated an ex­tra $160 mil­lion a year. And it af­fected only house­holds mak­ing more than $500,000 a year.

That year, the in­come tax gen­er­ated $9.15 bil­lion. In 2018: $10.13 bil­lion, more than half the gen­eral fund. And yet we still faced short­falls, and Mal­loy and the Gen­eral Assem­bly were forced to cut state jobs.

Yes, the state’s econ­omy re­mains weak (al­though it’s im­prov­ing) and high taxes are a rea­son for it, as Ste­fanowski says — and La­mont agrees. The big­ger

is­sue is Con­necti­cut’s lack of a mag­net city.

But Ste­fanowski isn’t say­ing we need to hold the line on taxes or cut here and there. He’s say­ing we need to elim­i­nate the big­gest sources of rev­enue, pe­riod. And his plan isn’t a mid­dle-class tax break. It’s an across­the-board end to the taxes that hit the rich far harder than the mid­dle class.

Ste­fanowski is also right that the rich are leav­ing. There is mixed ev­i­dence on how much, but clearly it’s a prob­lem. What to do about it?

Ste­fanowski is right about elim­i­nat­ing the gift tax, which Con­necti­cut alone levies. And we should knock the in­her­i­tance tax way down, per­haps be­low fed­eral thresh­olds. We should also cut the $1 bil­lion-a-year cor­po­rate earn­ings tax, which he wants to elim­i­nate al­to­gether.

All of that will help stanch the exit of rich peo­ple with­out turn­ing Con­necti­cut into Mis­sis­sippi,

which, by the way, hasn’t been a haven for the rich since Bernie Eb­bers went to the fed­eral slam­mer.

How the num­bers work

We all agree it would be bet­ter to lower taxes. Find­ing waste and fraud in state gov­ern­ment, the near­est thing to a plan by Ste­fanowski, won’t do it be­cause our fixed obli­ga­tions are ris­ing faster than waste-hunt­ing can cure.

“It’s no won­der Don­ald Trump en­dorsed Ste­fanowski, and it’s no won­der that Ste­fanowski proudly stands with Trump,” La­mont said in the writ­ten com­ments. “The idea that a few hun­dred peo­ple, who al­ready take home tens of mil­lions of dol­lars a year, would get over a bil­lion dol­lars in breaks an­nu­ally is sim­ply stag­ger­ing.”

In 2011, the year of the state tax study, 357 tax­pay­ers paid $683 mil­lion, or 11.7 per­cent of the state in­come tax. If we add in the ef­fects of the tax in­creases and as­sume that same group pays the same pro­por­tion of to­day’s in­come tax, we come up with the $1.3 bil­lion, or $3.6 mil­lion per filer.

Like­wise, the 4,000 rich­est Con­necti­cut tax­pay­ers paid 22.5 per­cent of the state in­come tax in 2011, and the same cal­cu­la­tions give us the $600,000 in tax breaks they’d av­er­age to­day.

Those num­bers are al­most cer­tainly too low. We know the top 1 per­cent holds an in­creased share of the in­come. Tax col­lec­tion data from 2016 shows that in with­hold­ing alone, the top 4,000 house­holds paid $1.3 bil­lion, and we know they earned a huge share of the $3.2 bil­lion in cap­i­tal gains, div­i­dends and in­ter­est not shown on the with­hold­ing.

The cau­tious num­ber is enough to make the point: A $3.6 mil­lion bounty per tax­payer while dis­man­tling the state is not a great deal for any­one.

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