Income tax’s end to help the few
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.