A small but profound example of the need for political balance in the state legislature is the Connecticut Department of Revenue Services (DRS) 2023 Tax Incidence Report, a 77-page research document prepared by Accenture and the DRS’s Research and Analytics unit and published this past February.
It is presented as a rigorous and fairly-researched non-partisan policy tool, but it is the sinister opposite. It is extreme left-wing propaganda, laying the groundwork for a statewide property tax. It continues to spawn all sorts of “tax the wealthy more” news articles and opinion pieces by those who lack the time or inclination to examine the report’s assumptions.
The executive summary states that the report “reveals that lower-income deciles shoulder a relatively higher tax burden compared to higher-income deciles,” with “the property tax being particularly regressive.” The only tax the DRS found to be “slightly progressive” (meaning higher earners pay a higher percentage) was the Personal Income Tax, which comprises 33% of total Connecticut tax collections.
Meanwhile, Gov. Ned Lamont’s Biennial Budget introduction characterizes Connecticut’s income tax structure as “very progressive,” which it is. Fewer than 20,000 Connecticut tax filers —1.1% of all filers— paid 40% of the state’s entire $10.2 billion income tax in 2020. A total of 4,324 filers paid over 26% of total state income tax. A lot of those guys can move to Florida or one of the eight other states that have zero state income tax.
Meanwhile, 30% of all tax filers (over 530,000 households) paid no income tax. Those households received over $60 million in credits from the state and far more from the federal government. Income from nutritional support, housing assistance, healthcare or other programs is not required on CT-1040s, and therefore not included in the DRS analysis.
Personal Income Tax is the only state tax than can be accurately evaluated for its progressivity or regressivity. No other state tax can be accurately attributed to individual tax filers.
The rest of this report is riddled with ridiculous assumptions about who pays Connecticut state taxes, buried in later pages and hidden behind graphs of statistical dispersion. A logic test of these assumptions tells me that while other tax revenue streams may be less progressive than the state income tax, high income tax filers pay most of Connecticut state taxes, and state tax revenues remain highly progressive overall.
Here are the top six absurdities:
1) This report assumes all 1.8 million tax filers pay a similar amount in property taxes, because the state cannot connect town property tax collections to state income tax filings. (Property taxes are paid to towns, but this study attempts to assess the incidence of all state and local property taxes.)
Property taxes are the state’s largest revenue contributor, at 38% of total tax collections. Residential real estate is most of total property taxes (68%), or 26% of total state tax collections. This report bizarrely assumes that the lowest income decile, 884,000 tax filers with a median adjusted gross income (AGI) of $21,000, pay $6,300 per filer in property taxes and that the three highest income deciles pay $10,700.
Most of the lowest income decile do not own their homes! (Two thirds of Connecticut residents owned their homes in 2020.) Meanwhile the highest income deciles —19,600 tax filers with a median AGI of $2.3 million — pay a lot more than 10,700. (The 478 people making $24 million a year are paying less than $11,000 in total property tax. Huh?)
This illogic, buried on page 36 of the report, makes Connecticut’s largest tax source appear especially regressive. But it is a completely wrongheaded assumption. The average Greenwich property tax payment in 2020 was almost $15,000 across 26,200 tax filers.
Â
2) This report makes similarly hair-brained assumptions about who pays Connecticut sales and use taxes, such that the lowest income population decile appears to bear a highly regressive burden.
The DRS data (again buried on page 41) shows 884,000 tax filers with a median AGI of $21,000 paying almost $1.2 billion in sales taxes. This implies those households are spending $20,000 a year on taxable items in the state of Connecticut. It ignores the luxury sales tax tiering begun in late 2019, and the fact that tons of out of staters come to Fairfield County to dine and shop. (The non-partisan Tax Foundation estimates that 20% of all state and local tax collections are “exported” to other states, meaning paid by residents of other states.)
The DRS used Consumer Expenditure Survey data from the Bureau of Labor Statistics to assign taxes by income level, yet higher income consumers do not fill out these surveys. Likewise, this report assumes an even distribution of Corporation Business and Other Taxes across all filers, even though higher income filers certainly pay more of these taxes than lower income filers. (Residential gas, electricity and heating fuel—on which taxes might be regressive —are not subject to Connecticut state income tax.)
3) The DRS Report makes no caveat relating to the massive amount of means-tested social welfare payments made to lower income households in Connecticut by the federal government. Such welfare spending totaled $1.6 trillion nationwide in 2023, implying Connecticut residents received $1.8 billion on a per capita basis. Some 36% of Connecticut residents are enrolled in Medicaid and 230,000 households receive over $500 million in Supplemental Nutrition Assistance Program benefits (SNAP, formerly Food Stamps). The Census Bureau doesn’t count 88% of transfer payments made to households defined as “poor,” including refundable tax credits, food stamp debit cards, Medicaid funded care, and others.
4) The DRS Report omits $513 million in highly progressive taxes from its analysis, the Estate and Gift Tax and the Real Estate Conveyance Tax. These are effectively wealth taxes, paid on top of the state’s $10.2 billion in income tax. 2020 Estate and Gift Taxes were $253 million on $6.7 billion in estate and gift amounts.
The report does not say how many Estate and Gift Tax returns were filed, but given that neighboring states (Massachusetts, New Jersey, Pennsylvania) had only 72 taxable estates each, you would assume this falls entirely on the top two income deciles, 4,300 filers.
Likewise, the Real Estate Conveyance Tax of $259 million on $29.2 billion in residential property is paid for by households who own homes and land —about 66% of Connecticut tax filers— with a top rate of 2.25% for the price portion over $2.5 million.
5) The DRS report acknowledges that the tax burden on the lowest income decile tax filers could be a lot lower than reflected, because tax filers with a negative AGI are counted as having zero AGI. (Certain adjustments such as student loan payments, alimony payments and retirement contributions could cause AGI to be negative.) And yet this report draws most of its conclusions from Income Decile 1 (with almost half the state’s tax filers) and Population Decile 1 (with 10% of the state’s tax filers).
The DRS acknowledges that “excluding property tax in the summation of taxes paints a more progressive picture of total economic incidence.” But the report’s summary and conclusion relies upon a falsely regressive picture of property tax incidence.
This is way beyond a lack of transparency. It is totalitarian-style propaganda that would be comic if it weren’t so frightening. In this case, Connecticut state employees are publishing bad analysis to advance a damagingly progressive agenda.
I am highly offended by it and you should be, too.
Virginia Genereux lives in Greenwich.