Low income paying proportionately more than their fair share of CT taxes, study shows

Back • Publication Date: February 20, 2024 • Fiscal & Economics

Connecticut’s lower-income families continue to pay more than their fair share of taxes as a proportion of total earnings, with property taxes the main driver, a recent state study shows.

The inequity comes even as some cities and towns have lowered their base mill rates to help families who are seeing tax bills rise in tandem with the values of their homes since the real estate boom took off with the pandemic, the study shows.

In the latest installment of an ongoing tax “incidence” study, the Connecticut Department of Revenue Services analyzed Connecticut tax collections in 2020. The disruptions of the COVID-19 pandemic extended to tax collections, whether prompted by delayed tax filing deadlines or more earners opting for early retirement or extended work sabbaticals, to contain the spread of the virus.

But in a separate report last November, the Congressional Budget Office determined that the pandemic reduced income inequality by the largest margin on record dating back to 1979, due to federal assistance doled out to individuals and states.

The Connecticut General Assembly’s Committee on Finance, Revenue and Bonding signaled plans to review the DRS findings in a hearing this week or next pending finalization of schedules, with an eye on any possible changes in tax policy.

In the state study, DRS describes Connecticut income taxes as “slightly progressive and proportional” compared to other states, after applying models to existing data. But homeowners here continue to pay some of the highest property taxes in the country, adding up to 38.2 percent of collections in 2020 as calculated by DRS

“In the past when there were lower costs of living, people could save more and they could start to build that wealth slowly over time,” said Shira Markoff, senior policy director for the national advocacy group Prosperity Now, speaking last month during a forum hosted by Connecticut Voices for Children carried by CT-N. “But now people are really struggling — their earnings are usually not keeping up with their current expenses.”

Markoff added that investments are not taxed at the same rate as work earnings, producing a relatively higher tax obligation for those who lack significant stock or other holdings, creating an even wider gap between working poor and wealthy residents.

Gov. Ned Lamont approved income tax cuts last year intended to reduce further the amounts paid by middle-income earners, with his budget chief telling the legislature’s Committee on Finance, Revenue and Bonding earlier this month that the governor’s latest budget adjustments for next fiscal year starting July 1 included no new taxes.

In the early days of the 2024 so-called short-session of the Connecticut General Assembly, legislation has been proposed to include credits on property taxes. Other proposals include eliminating income taxes on Social Security benefits and individual retirement account distributions; creating a tax deduction for the cost of home health care and credits for long-term-care insurance premiums; or increasing deductions for contributions to college savings accounts and adding a credit for interest paid on student loans.

In a Monday study of income tax payments nationally to states by the Tax Foundation, income taxes amounted to 38 percent of all taxes in the 50 states in the 2022 fiscal year.

More than half of states cut individual income taxes between 2021 and 2023, with Massachusetts the lone state to increase its top marginal tax rate along with the District of Columbia. In the aggregate, Tax Foundation researchers dubbed 2023 a “historic pace of income tax rate reductions” in states nationally.

Includes prior reporting by Ken Dixon and John Moritz.

Alexander Soule is a business writer with Hearst Connecticut Media Group. He covers the state economy and other business news as well as penning a monthly column on personal finance for Connecticut Magazine. Before joining Hearst Connecticut, Alex started a growth economy website called Enterprise CT chronicling Connecticut startups. Before that, Alex spent six years with the Fairfield County Business Journal, and before that the Boston Business Journal, the Rochester Business Journal, Mass High Tech and InsuranceTimes in Boston. Alex is a Maine native who served a two-year enlistment in the U.S. Army (Fifth Infantry Division at Fort Polk, La.) before attending Connecticut College.
Authors: Alexander Soule •  Source: CT Post • View