A more progressive income tax is the answer

by: Jon Kantrowitz

Tue Jun 02, 2009 at 11:51:35 AM EDT

SEBAC members voted earlier this month to accept wage freezes, furlough days and other givebacks to help the state balance its budget, returning $700 million to the state's general fund. The agreement was designed to protect public services, services that Connecticut will need even more as the economic downturn continues.

SEBAC is working with a wide range of organizations including Better Choices for Connecticut, a community coalition that is addressing the state's imbalanced revenue system.

Our unfair tax system contributes to these revenue problems. After federal tax deductions, Connecticut's wealthiest families only pay about 4.5 percent of their income in state and local taxes, compared to 9.3 percent for middle-income families and 12.1 percent for low-income families. In other words, middle-income and low-income people pay more than twice the share of their income in state and local taxes than high-income residents do.
 

As policy makers contemplate the impact of severe state budget cuts that will certainly harm many Connecticut families, they must, at the very least, take action to make sure that Connecticut's wealthiest residents are contributing their fair share toward the most vital functions of state government.

The solution, as advocated by Connecticut Voices for Chidren,  is a more progressive income tax. Adopting higher income tax rates for married couples who earn more than $250,000 (and individuals who earn more than $132,500), as proposed by the legislature's Finance Committee, would raise an estimated $1.226 billion in additional revenue to close the budget deficit, while affecting less than 7 percent of Connecticut taxpayers.

Even under this proposal, income tax rates on Connecticut's wealthiest residents would still be lower than the rates in most neighboring states. Of the 41 states with income taxes, only seven have a lower marginal rate for the wealthy than Connecticut.

And even with this rate increase, the share of income paid in state and local taxes by Connecticut's wealthiest 5 percent would still remain smaller than what is paid by the "bottom" 95 percent of families. That is, this change would only begin to make the state and local tax system less regressive.

In the long term, a progressive income tax could help to reduce the state's over-reliance on regressive property taxes, creating additional revenues in more prosperous years that could be used to more fully fund education at the state level.