As income inequality rises, revenue declines. This is the counter-intuitive finding of states near and far from Connecticut which depend heavily on income tax. This is also why Connecticut is in the midst of another budget crisis and why more are expected.
Following the path of large corporations, the ultra-wealthy keep finding new ways to avoid taxation. The growing “Income defense industry” provides teams of specialists which quietly engineer tens of millions in tax savings for those in the .1 percent and up. “If the bulk of (their income) had been paid out as salary or wages, as it is for the typical American, the tax obligations of those wealthy taxpayers could have more than doubled.” The embattled IRS can’t keep up with the scale of tax avoidance.
Job sector changes do not account for all of Connecticut’s vanishing revenue. Tax avoidance by sophisticated elites has proliferated under the radar. Gov. Dannel Malloy hasn’t mentioned it directly, but has been adamant about “not raising taxes.” Instead, he proposes reopening union contracts not due to expire for six years to extract concessions. If the unions refuse, he plans massive layoffs and spending cuts to vital services to adjust to the “new reality.”
The governor’s harsh proposal could kick the can down the road, but doesn’t address the vanishing revenue problem. Left unchecked, income inequality will continue to fester, shriveling up the state’s economy and hollowing out what’s left of the middle class. Should unions agree to concessions to finance tax avoidance by the wealthy? Far better to insist that well-heeled tax dodgers become part of the solution.
William Buhler, of Cromwell, worked at the Connecticut Juvenile Training School as a school psychologist and is co-chair of legislative action for SEIU/CSEA.