FOR IMMEDIATE RELEASE
February 26, 2024
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Connecticut Voices for Children Report:
Tax Incidence Study Confirms State’s Regressive Tax System Unfairly Burdens Low- and Middle-income Tax Filers, Exacerbates Economic Inequality
New Haven, CT [February 26, 2024] - Connecticut Voices for Children today released a new report, “Overview of the 2023 CT Tax Incidence Study,” in response to the Connecticut Department of Revenue Services’ (DRS) “2023 Connecticut Tax Incidence Study,” published on February 14, 2024. This new publication examines the 2023 Tax Incidence Study, provides a summary of key findings and offers policy recommendations to improve tax transparency and make Connecticut’s tax system progressive through revenue-neutral tax reform.“The bad news is that Connecticut’s tax system is still regressive,” said Emily Byrne, Executive Director of Connecticut Voices for Children. “The good news is that we can create a tax system that’s fair for everyone while also investing in the necessary supports hardworking families are asking of policymakers like early care, K-12, and higher education as well as affordable housing and healthcare.”The tax incidence study is essential for policymakers because it provides an estimate of the distribution of Connecticut’s state and local tax burden for tax filers at different income levels. Over the last decade, Connecticut has published three tax incidence studies. A 2014 study examined tax year 2011, a 2022 study examined tax year 2019, and the new 2023 study examined tax year 2020. “The new DRS tax incidence report shows that Connecticut's tax system unfairly burdens low and middle-income families,” said Dr. Patrick O’Brien, report author and Research and Policy Fellow for Connecticut Voices for Children. “Building on that work, our new report shows that the major tax cuts passed into law since 2020 will provide support for low- and middle-income families but unfortunately those tax cuts are still not sufficient to create a progressive tax system. It's therefore essential to provide additional tax relief, including, but not limited to, the creation of a state-level child tax credit.”The report discusses four key findings from the new Connecticut Department of Revenue Services’ (DRS) tax incidence study:
Connecticut still has a regressive tax system, meaning it unfairly burdens low- and middle-income tax filers and exacerbates the state’s high level of economic inequality. Additionally, previous research from CT Voices shows that a regressive tax system increases the state’s already high level of economic inequality—specifically, income inequality, racial and ethnic income gaps, income poverty, wealth inequality, racial and ethnic wealth gaps, and wealth poverty.
The property tax remains highly regressive and is the primary factor contributing to Connecticut’s overall regressive tax system. The tax incidence analysis in the new DRS tax study includes eight taxes: the property tax, personal income tax, corporation business tax, sales and use tax, excise tax, public service tax, motor vehicles tax, and petroleum products tax.
A shortcoming of the new DRS tax incidence study is that it does not incorporate major tax cuts that go into effect after tax year 2020. However, CT Voices included an analysis of the estimated impact of four major tax cuts: increasing the value and restoring the eligibility for the CT Property Tax Credit (PTC), increasing the CT Earned Income Tax Credit (EITC), reducing the CT personal income tax (PIT), and the reducing the motor vehicle mill rate cap. These major tax cuts, while providing essential support for low- and middle-income tax filers, are insufficient to make CT’s tax system progressive or even proportional.
The new tax incidence study does not include some statutorily required information that is essential for policymakers to improve CT’s tax system. The 2023 DRS tax incidence study provides an important overview of Connecticut’s tax system, but it does not include the pass-through entity tax; taxes that generated at least $100 million, tax incidence projections for each tax; information on the top 5 or 1 percent of taxpayers for each tax; information on taxpayers who are homeowners, single, married, seniors, or have children; complete analysis of other tax modifications against the PIT that result in a revenue loss of at least $25 million; information about the resources necessary to prepare the report in-house moving forward; and more.
CT Voices provides several policy recommendations that improve tax transparency and make CT’s tax system progressive through revenue-neutral tax reform.Policies to Improve Tax Transparency
Use a more comprehensive measure of income in future tax incidence studies and also include non-tax filers.
Include all the statutorily required information in the future tax incidence studies and the upcoming tax gap study.
Develop an advisory body of tax experts to review the DRS’ major tax studies—the tax incidence study and the tax gap study—before their publication to ensure that all the statutorily required information is included and that the reports are of the highest quality.
Provide the DRS with sufficient resources to ensure that it can develop the statutorily required tax transparency reports entirely in-house and then—in addition to the existing requirement to provide tax incidence projections—require the DRS to provide a tax incidence analysis of any major tax proposal before it passes into law.
Establish an advisory body of key policymakers and tax experts to create a comprehensive revenue-neutral proposal to make CT’s property tax less regressive, or possibly even progressive, and ensure that it does not harm municipalities.
Policies to Make CT’s Tax System Progressive Through Revenue-Neutral Tax Reform
Generate revenue through one or more of the following sources: eliminate and/or close the state’s tax gap, which likely primarily benefits high-income and wealthy tax filers; eliminate and/or reduce regressive tax expenditures; and/or increase personal income tax rates on high-income and wealthy tax filers. Then use that revenue to fund tax cuts for low- and middle-income tax filers, including the creation of a state-level child tax credit (CT CTC).
Make the property tax less regressive, or possibly even progressive, by reforming the design of the tax. This could include but is not limited to changing the assessment rate, establishing graduated tax rates for higher value homes, and/or establishing a progressive statewide property tax on very high value homes to fund property tax relief for low- and middle-income families.
“Connecticut Voices for Children envisions a Connecticut where all our children reach their full potential, which requires eradicating poverty and advancing family economic security,” shared Byrne. “The truth is that if we want all our state’s children to thrive, we need to invest in them more; revenue from the taxes of those who can most afford it will help raise all boats by ensuring the state has the essential infrastructure that makes Connecticut a desirable state for families, including housing, healthcare, early care and education. Supporting our families also benefits the state. Tax policies, like the creation of a Connecticut Child Tax Credit, promote more progressivity in our tax code, provide flexible dollars for hardworking families, and perpetuate a virtuous economic cycle.”
ABOUT CONNECTICUT VOICES FOR CHILDREN
Connecticut Voices for Children is a “think and do” tank working to ensure that Connecticut is a thriving and equitable state where all children achieve their full potential. In furtherance of its vision, we work in the state and nationally to advance economic justice systems change through research and policy development as well as power building and legislative advocacy.
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