Connecticut commission recommends major overhaul of tax system

Connecticut commission recommends major overhaul of tax system

HARTFORD — A state panel recommended a dramatic shift in state tax burdens Thursday from wealthy taxpayers onto businesses and consumers as part of a plan to stabilize government finances and jump-start the economy.

The Commission on Fiscal Sustainability and Economic Growth unanimously approved a report that would lower all income tax rates — including dropping the top rate from nearly 7 percent to 5.75 percent — and repeal the gift and estate taxes while raising sales and corporation levies. Because the wealthy pay the majority of state income taxes, they also would benefit disproportionately from a rate reduction.

The commission also would eliminate $750 million in tax credits and exemptions, and most of those within the state tax system are aimed at consumers.

Other recommendations include: a major hike in the minimum wage to $15 per hour; an end to collective bargaining for state employee benefits after the current contract expires in 2027; and electronic tolling and a gasoline tax hike to fund a major transportation rebuild.

The 14-member panel created by the legislature also would empower municipal coalitions to add one-half of 1 percentage point to the sales tax rate to fund regional services and diversify local budgets that rely on property taxes.

It also urges slashing $1 billion from the annual budget, and the building of a new major college campus focused on science and engineering in a major Connecticut city.

“While we knew upon undertaking this work that the state faced considerable problems, we now understand that they are even deeper and more urgent than we knew,” the commission wrote in its report.

Massive debt — tied chiefly to poorly funded, public-sector retirement benefits — “flat economic growth” and a declining population have left Connecticut in a precarious position, the report said. “The good news is that the situation is fixable if we take bold action. We are optimistic about the future, but only if our governmental leaders and the entire General Assembly share our assessment of the situation and are willing to take immediate action.”

Commission Co-chair Robert Patricelli of Simsbury, a retired health-care entrepreneur, said all segments of Connecticut must play a role in solving this crisis. “The biggest enemy we face is the tendency to do nothing. But this ship … is literally burning.”

“The commission’s recommendations can change the course of Connecticut’s future,” said Webster Bank chairman and former CEO Jim Smith, the commission’s other co-chair, who added the panel’s recommendations work “only if taken together.”

“It really can’t be cherry-picked,” said former state Rep. Patricia Widlitz, D-Guilford, a former co-chair of the legislature’s Finance, Revenue and Bonding Committee.

Tax overhaul

The plan is centered on an overhaul of the state tax system which, since 1991, has been built around a personal income tax. Reducing all income tax brackets in three stages beginning in the 2019-20 fiscal year would reduce the state’s annual take by $2.1 billion.

For a couple filing jointly, Connecticut currently taxes the first $20,000 earned at 3 percent. For most households, income above that is taxed at between 5 and 6.5 percent.

The commission’s plan would set a new top rate of 5.75 percent. The 5 percent rate would be reduced to 3.5 percent, while earnings less than $20,000 would not be taxed at all.

The $2.1 billion potential loss in annual income tax receipts would be covered in three ways, according to the commission report:

■Raising the base sales tax rate from 6.35 to 7.25 percent to generate an extra $1 billion per year.■Eliminating $750 million in tax breaks. More than $4 billion of the $6.4 billion in credits and exemptions Connecticut has on the books involve the sales tax. Most of the rest are centered on the income and corporation taxes.■And by boosting corporation taxes by $475 million.

Many businesses in Connecticut and nationwide just got a major tax break at the federal level. The new plan enacted by Congress lowers the federal corporation rate from 35 to 21 percent.

“We think it’s important for the business community to share the burdens of digging Connecticut out of the hole,” Patricelli said.


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