Blog: Budget and Tax | Connecticut Voices for Children

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May 20, 2013

Cap Crunch

As budget negotiations enter the final weeks of the legislative session, a major obstacle remains: without a two-thirds majority of each chamber of the General Assembly agreeing to the Governor’s proposed spending cap changes, legislators will need to cut over a billion dollars from the proposed upcoming biennial budget due in large part to existing structural flaws in the current spending cap formula. To do so would be to miss a prime opportunity to address these structural flaws, and would slash critical resources from a state budget already stretched thin.

The Governor has proposed two substantive reforms to the cap rules. Here’s why they matter:

To help the state take advantage of fully-funded federal programs (like the expansion of Medicaid to low-income adults under Obamacare), the Governor proposes exempting new spending that is entirely reimbursed by the federal government from the spending cap. This will ensure that the spending cap fulfills its original purpose – to limit state, not federal, spending. Under current cap rules, the state has an incentive to turn away new federal funds.

Additionally, the Governor proposes that contributions to pay down the state’s huge unfunded pension liabilities should be exempted from the cap. Making these pension fund contributions is important to improving the state’s long-term fiscal health, and the Governor’s proposed reform would help us fill the hole in the pension system without squeezing out other important investments in kids and families.

Failure to adopt these proposed changes would force more than a billion dollars in proposed cuts to critical investments in Connecticut’s future – while handcuffing the state’s ability to pay ahead on longstanding fiscal obligations, and creating a disincentive for the state to maximize important new federal revenue.

Lawmakers should act swiftly to approve the changes set forth in House Bill 6352. For more information, see Voices’ recently-released fact sheet and see our new issue brief on the topic, which explores additional reforms that could improve spending cap rules.

Issue Area:: Budget and Tax

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April 28, 2013

Connecticut Taxes: Lower Than New York's for Everyone but the Poor

Wade Gibson, J.D.

One sometimes hears that recent state income tax increases on the rich could cause them to leave Connecticut for New York and points south. Academic research has shown that taxes are simply not a significant factor in families’ moving decisions. Nonetheless, some believe they are, and so it is important for policymakers to understand how much people actually pay in state taxes in Connecticut vs. New York. A close examination of how much people in different income groups pay in taxes reveals that if taxes are really so pivotal, the rich in New York should be moving to Connecticut, while the poor in Connecticut should be moving to New York.

According to an analysis by the national Institute on Taxation and Economic Policy, the effective rates (how much people actually pay) of New York state income taxes are substantially lower for the poorest 40% of taxpayers, while the effective rates of Connecticut income taxes are lower for the richest 1% (5.4% vs. 6.3%). (State earned income tax credits in both states lower the income tax liability for low-income workers to offset the impact of sales and property taxes.)

Effective State Income Tax Rates, Connecticut and New York

Factoring in sales, property, and other state and local taxes for a complete picture, the story is similar. Taxes in New York are higher than Connecticut’s for every income group except the poorest 20%, who pay more in state and local taxes in Connecticut than in New York. In Connecticut, the poor pay more while everyone else pays less.

Effective State and Local Tax Rates, Connecticut and New York

Chart (Effective State and Local Tax Rates, CT and NY)

If Connecticut state government conducted this kind of analysis regularly, policymakers could make more informed decisions about the impact of our state and local tax policies on workers in different income groups and businesses of different sizes. That’s why we’ve called for “tax incidence analyses” that would help policymakers to reform Connecticut’s regressive state and local tax system and develop tax policies based on solid evidence.

Issue Area:: Budget and Tax

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April 25, 2013

A Missed Opportunity: The Finance Committee's Revenue Package

Wade Gibson, J.D.

In February, Governor Malloy proposed a budget that relies heavily on one-time revenues and borrowing to achieve balance. Last Friday, the legislative Finance Committee passed up an opportunity to improve upon the Governor’s budget. Instead, as we describe in a new issue brief on the topic, the Committee proposed borrowing even more money, further increasing one-shot revenues, and boosting estimates of how much revenue would be generated by proposals already in the Governor’s budget.

Two years ago, the General Assembly and Governor budgeted based on the assumption that our economy would recover strongly and refill the state’s coffers with new tax revenues. Unfortunately, the robust recovery never materialized, and we were left with over $2 billion in deficits going into the next two-year budget, which starts July 1.

The Governor and Finance Committee are placing the same bets for the next two years. The Governor proposes to borrow $750 million and cut vital public services in the hopes that the economy will recover and we will be able to pay down those debts and restore those services. The Finance Committee goes one step further, proposing over $900 million in borrowing. While the Appropriations Committee has restored funding for some vital services in its spending package, the Finance Committee’s revenue proposal puts the future stability of funding for child and family services at risk.

It does not have to be this way. The General Assembly still has time to balance the package of borrowing and cuts currently being advanced with additional revenues. Closing corporate tax loopholes through mandatory combined reporting could generate about $90 million per year, while raising income taxes on income over $1 million could generate over $400 million annually and still keep our rates below New York’s. These two changes could more than offset the Finance Committee’s proposal to borrow $900 million over two years, and would do so without leaving our children an even heavier debt burden.

Issue Area:: Budget and Tax

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April 22, 2013

HUSKY in the Appropriations Committee Budget

Sharon Langer, M.Ed., J.D.

The legislature’s appropriations committee has released its proposed budget for Fiscal Year (FY) 14 and FY 15. Below we describe several services or programs related to HUSKY and how they compare with the Governor’s budget proposal from February. The Finance, Revenue and Bonding Committee also released its proposal for how the government will fund the two-year budget.

HUSKY A Parents. The Appropriations Committee restored eligibility for HUSKY A (Medicaid) parents with income between 133% and 185% of the federal poverty level (FPL). The Governor had proposed eliminating coverage for the 37,500 parents with income above 133% FPL. (This adds back $5.6 million in FY14 and $58.8 million in FY15.)
Co-Payment for Non-Emergency Use of Hospital Emergency Department. The Committee proposes to impose a co-pay on certain Medicaid (HUSKY A, C and D) enrollees of up to $7.90. The budget document explains that “under federal law, states may charge co-payments for non-emergency use of emergency room services.” It also acknowledges that co-pays may not be imposed on certain categories of individuals, such as children. The Governor’s budget did not include this proposal. The Committee expects to save $675,000 in each of the two years of the budget cycle.
Healthy Start. The Committee restored funding for community-based Healthy Start programs that assist pregnant women in accessing health coverage and prenatal care. (Adds back $1.43 million in FY14 and FY15. (Carries forward 5% cut from rescissions in FY13.)
HUSKY Independent Performance Monitoring (“Children’s Health Council” line item). The Committee restored funding for independent monitoring of enrollment patterns and long-term trends in the use of children’s health services, including well-child, dental, emergency, and asthma care. Since 1995 these analyses have been conducted by Connecticut Voices for Children under a contract between DSS and the Hartford Foundation for Public. (Adds back $208,050 in FY14 and FY15. Carries forward 5% cut from rescissions in FY13.)
2-1-1/United Way’s HUSKY Infoline (“HUSKY Informational and Referral” line item). This longstanding service provides families with one-on-one assistance with information, accessing coverage and obtaining needed care. The Governor proposed halving the funding in FY14 and eliminating it entirely in FY15 with the expectation that the new help lines available through the new Health Insurance Exchange will take the place of services provided through Infoline. The Committee agrees with the Governor’s proposal. (Retains reduction of $159,393 in FY14 and -0- in FY15).
School-Based Health Centers (SBHCs). The Committee restores funding for “new, expanded, or newly funded SBHCs” from FY13 carrying the funding forward in both FY14 and FY15 ($2.7 million per year). Also, $5 million was added to permit five school districts to increase hours of operation, conduct outreach about their services, provide services to “students outside the school district”, or offer behavioral health and other services not ‘typically provided by SBHCs.”
Funding for Hospitals. For the most part, the Committee agrees with the Governor’s proposal to reduce hospital funding by hundreds of millions of dollars. The proposals assume that many more individuals will be covered by public and private insurance in 2014 and therefore hospitals will no longer need “Disproportionate Share Hospital” (DSH) payments that account for hospitals serving those who lack insurance.

We assume that it will not be easy for the Governor and the legislature to come to an agreement on the revenue and spending package before the regular session ends on June 5th. As a result, it is vital that constituents contact legislative leadership and the Governor and make their preferences heard.

Also, please take the time to thank the co-chairs of the Appropriations Committee, Senator Toni Harp and Representative Toni Walker for restoring funding for HUSKY parents with income above 133% FPL.

Senator Toni Harp 1-800-842-1420
Rep. Toni Walker 1-800-842-8267

Issue Areas:: Budget and Tax, Health

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April 15, 2013

Reality Check: Who Pays Taxes in Connecticut?

Matt Santacroce

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.

Issue Area:: Budget and Tax

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February 1, 2013

Connecticut Taxes: Still Regressive, but Less So

Wade Gibson, J.D.

A new report by the Institute on Taxation and Economic Policy finds that Connecticut state and local taxes unfairly burden lower-income taxpayers, although somewhat less so than in 2007, before recent tax changes, including an increase in income taxes for wealthy residents and an earned income tax credit for low-income workers. Under current law, the poorest 20% of taxpayers pay 11% of their incomes in income, sales, property, and other Connecticut taxes, while the richest 1% pay just 5.5%. Our tax system is regressive, asking poorer people to chip in proportionately more and wealthier people to chip in proportionately less.

CT State and Local Taxes by Income Group

Despite this unfairness, our system has actually become less regressive over the past few years. In 2007, the poorest 20% of taxpayers paid 12% (vs. the current 11%) of their incomes in taxes, while the richest 1% paid 4.9% (vs. the current 5.5%). Much room for improvement remains, however, even to reach a point where individuals at different income levels pay the same proportion in taxes.

State and Local Taxes by Income Group in 2007