Happy Tax Day! As last-minute filers across Connecticut look for stamps and rush to the post office to drop their tax returns in the mail before today’s deadline – and as the Finance Committee in the CT General Assembly nears an important deadline for voting on revenue measures needed to implement the next biennial budget – taxes are an item of much conversation this week.
Late last week, CT Voices released a brief that took a look at exactly who pays taxes in our state. In short, the report finds that the federal tax system is progressive (meaning that higher-income people pay a greater share of their income in taxes), but that the Connecticut system is the opposite, asking the most of those with the least. In Connecticut’s regressive system, the wealthiest 1% of taxpayers pay about half the share of their income on state and local taxes (5.5%) that middle-income (10.5%) and lower-income (11%) residents pay. While Connecticut’s income tax is progressive, its impact is overwhelmed by the regressive nature of our sales and property taxes, which hit lower-income residents hardest.
Some argue that the wealthy pay more than their share of income, pointing to the share of total tax dollars paid by the well-to-do. But while rich people in the U.S. pay a higher dollar amount in taxes, it is because their incomes are so much higher than everyone else’s, not because they are taxed far more heavily. Nationally, the top 1% of income earners pay 21.6% of all federal, state, and local taxes, and capture a similar share of income — 21%. Middle-income people earn 11.4% of income and pay 10.3% of total taxes, while the poorest 20% earn 3.4% of income and pay 2.1% of taxes. Therefore, each income group’s share of taxes roughly reflects its share of national income.
As we pointed out in a previous 2011 summary of tax inequity, anti-tax advocates typically claim that the richest 1% in Connecticut are overburdened because they pay such a large proportion of state income tax revenues — 37% in 2007. Yet, they earned 35% of all income in that year. So again, their income tax bills were merely proportionate to their incomes.
Fortunately, there are options available that could improve the fairness of Connecticut’s state and local tax system and help close the state budget deficit, such as raising top marginal rates on the very wealthiest in our state, closing corporate tax loopholes, and standing strongly behind a robust state EITC. (For more on the EITC, see our recent analysis).
We would also recommend checking out two other blog posts that add some national flavor to the Connecticut tax day festivities. First, from the Institution on Taxation and Economic Policy (ITEP), Six Things You Need To Know On Tax Day. Among other things, this post contains useful data on the relatively light tax burdens faced by wealthy individuals and corporations in our country. In addition, Ezra Klein’s Wonkblog has compiled “five charts that will make you feel better about paying your taxes.” We would point you specifically towards the charts showing that both total tax revenues (as a percentage of national GDP) and effective tax rates are on the decline.