State tax reform on the table

Dems look for new revenue, GOP focuses on controlling spending

What does the minimum wage have to do with taxes on capital gains and estates? They’re all part of the perennial discussions on managing the Connecticut economy, of course. But starting Wednesday, the link could grow.

With the General Assembly and a newly sworn-in Gov. Ned Lamont throwing out the first pitches of the season, there’s talk of broad reforms in the way the state raises money through taxes and fees. Heard that one before? So have I, since the last big reform that brought us the state income tax in 1991.

Rep. Matt Ritter, D-Hartford, the House Majority Leader, thinks it could be different this time. And he’s talking about tying together all sorts of ideas into a grand compromise designed to make Connecticut more competitive on the tax front.

At least we can all agree there’s plenty of room for improvement. No one loves the tax structure we have now.

But how would it all

work? In one example Ritter has floated, we’d give liberals the minimum wage increase to $15 an hour that they want, and give conservatives an end to the gift and estate taxes, aka the deadly death tax. To make it work, the state might have to raise taxes someplace else, Ritter said, such as taxing some capital gains a a higher rate than regular income.

That’s just one example. There’s no bill, but there is a will to finally make sweeping changes in the tax structure, Ritter and others said as they prepared to launch the new season in Hartford.

“I’ve had a couple of conversations with the governor-elect about it and so have other leaders,” Ritter said Tuesday. “And I think there’s a willingness to say, we collect X amount of revenues in Connecticut … How do we collect the same amount of revenues in a different way?”

Another idea, simpler, is adpting highway tolls in a limited way, then knocking the famously high gasoline tax down a bit. Gas taxes are dropping anyway, as cars grow more efficient and more electric.

Down the hall in the office of House Minority Leader Themis Klarides, R-Derby, talk of broad reforms has the sound of an echo stopping. She’s been talking about it for years, and addressed it again Tuesday.

As for tolls for the gas tax, Klarides said, “That is a revenue grab. We know that they don’t mean that. It’s never enough for these people, it’s always ‘Let’s spend more, let’s borrow more.’”

She added, “Having those conversations is one thing but we certainly won’t agree with anything that we think will hurt the state.”

Now you can see why this is so hard. But 2019 could be different for several reasons besides the new faces in Hartford.

First, there’s a rising awareness that things aren’t working in a state that has seen its total economic size shrink by 2.5 percent over the last eight years while the nation’s total output has grown by 14 percent.

Then there’s the perpetual budget crisis. Yeah, the projected shortfall for the fiscal year that starts July 1 is $1.7 billion, but it’s an easy $1.7 billion if you add up the pieces, which we’re not going to do here. That leaves breathing room for deeper horse-trading, as Ritter sees it.

“We have more flexibility than I think we had two years ago,” he said. “So the question is not, ‘Can we get through the next two years?’ ... The question is, do we hit the pause button and say, ‘How do we collect revenues in the state?’ And and should we be thinking about trying to align our tax policies better with our neighboring states so that we don’t provide new York or Florida with tax advantages?”

The details matter, of course. If Ritter agrees to retire the hated estate tax, he’s not willing to just assume the state will collect more revenues as fewer people leave. He wants to see real adjustments elsewhere in the tax code, and if fewer people leave, that’s all the better.

Likewise, the minimum wage — obviously not a tax issue — is on the table

because it’s a bargaining chip that the progressive caucus badly wants. Ritter has been criticized just for suggesting an end to the estate tax, and the minimum wage could turn the trick.

”We’re battling neighboring states, we really are,” Ritter said. “The Amazon headquarters thing makes your head spin.”

No cities other than Washington D.C. and New York ever had a chance to snag the $5 billion Amazon headquarters, of course, but the yearlong episode pointed out where Connecticut stands when it comes to taxes for the purpose of attracting business.

We’re not terrible for big business because corporate taxes are relatively low here with exemptions. But the income tax hurts partnerships and smallbusiness owners, among other issues.

And that estate tax — even with changes in 2017 designed to more closely mirror the federal tax, Connecticut sill loses out to tax-haven states such as Florida and New Hampshire, for relatively little gain. Within a few years, the volatile estate tax will raise only about $100 million a year and it could easily cost that much in rich people’s intense aversion to dying here.

One tax that’s likely to stand pat is the income tax, attacked in the recent campaign by Republican Bob Stefanowski. Gov.elect Ned Lamont, who by the time you read this might be the governor, favors leaving it as it is.

“I don’t think raising or lowering the income tax is to anyone’s benefit right now,” Ritter said.