Connecticut can avoid deep budget cuts to programs supporting children and families by fixing tax inequities and waste.
The report outlines a series of revenue options that could prevent harmful cuts to essential programs and services, including:
- Establishing “sunset,” or expiration dates, for tax breaks. Tax expenditures — in the form of exemptions, deductions and credits – result in a loss of over $6 billion in state revenues, nearly one-third of the state’s annual budget. Yet, unlike other forms of public spending, these tax breaks are not reviewed each year in the budget process. The report suggests establishing automatic sunset dates for all existing and new tax expenditure that would require regular review of these tax breaks.
- Eliminating ineffective or outdated tax expenditures. The report specifically identifies $476 million in tax expenditures for elimination, including tax exemptions for amusement and recreation services, winter boat storage, and lawn bowling clubs. The reason given by the state’s Office of Fiscal Analysis for the creation of these expenditures is either expediency — defined as violating best tax practices without offsetting public benefit — or economic incentive for goods or services that no longer require special treatment.
- Broadening the base of the sales tax to include more services. While the sales tax applies to the sale of most goods, services are not taxed unless done so explicitly through legislative action Services make up a growing share of the state’s economy, but the state’s sales tax has not kept pace.
- Increasing progressivity at the top end of the state’s personal income tax. Connecticut’s top “marginal rate” of 6.7% is substantially lower than those in other states like New York (8.82%) and New Jersey (8.97%). Increasing progressivity by raising top rates would offset $300 million in cuts to children and families while leveraging significant ($114 million) federal funding.
Further revenue options include closing corporate tax loopholes through “combined reporting” reforms, raising the cigarette tax, and introducing a sugar-sweetened beverage and candies tax.