Connecticut adopted the income tax 25 years ago. Much has been said and written since its introduction. With the state again facing budget deficits, much of the discussion has centered on why the income tax, approved after a protracted eight-month legislative battle to solve a fiscal crisis, has not prevented us from facing another one.
For starters, the introduction of the income tax was in fact a tax cut for many high earners. While it is true that the top income tax rate has gone up from 4.5 percent to 6.99 percent in the last 25 years, up to 1991 Connecticut taxed capital gains at 7 percent and major interest income at rates up to 14 percent. The income tax shifted the tax burden from the very wealthy to the middle class, not the other way around.
Next, the income tax was paired with passage of a constitutional spending cap which resulted in a dramatic decrease in the rate of growth of state spending. Before 1992, Connecticut’s state government spending was increasing at a 9.6 percent average annual rate. In the years following, the rate dropped to 4.2 percent.
Despite this decrease in the rate of growth in state spending, Connecticut made great strides on several important measures of community health and wellbeing. Connecticut is and has been a national leader in early care and education, with 79% of children having pre-Kindergarten experience; our state has the highest share nationally of 3- and 4-year- old kids attending school. Connecticut has the lowest child and teen mortality rate in the country, and the third lowest teenage birth rate.
While a recent critique from the Yankee Institute pointed to the increase in child poverty over the past 30 years as an indictment of the income tax, that critique fails to take into account how favorably the state compares to other states in terms of overall poverty, or how dramatically individual policies, such as the Earned Income Tax Credit, have decreased family poverty. Connecticut has the third lowest poverty rate in the nation. In contrast, Texas and Florida, two states without income taxes, face poverty rates more than 50 percent higher than ours, precisely because they do not have these policies in place.
Although Connecticut’s tax system certainly needs reform, the income tax is not at the center of its problems. Most of our revenue woes come from system full of loopholes, unnecessary tax expenditures and giveaways. Fixing Connecticut’s tax code to make it more fair, transparent and predictable would do far more to promote growth and fix our budget crisis than any income tax cuts for the powerful.
Ellen Shemitz, Executive Director, Connecticut Voices for Children.