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Clash Over Who Pays Their Fair Share

By CHRISTOPHER KEATING

April 12, 2013

Are the rich paying their fair share?

Much of the presidential campaign between Barack Obama and Mitt Romney centered on that question as political operatives focused on the top 1 percent and the bottom 47 percent of American society.

Now, a report released Friday by New Haven-based Connecticut Voices For Children says that the poor and the middle class in Connecticut pay a higher percentage of their income in state and local taxes than the rich. As such, the left-leaning think-tank is calling on the state legislature to preserve the state earned income tax credit, which was created by Democratic Gov. Dannel P. Malloy and the General Assembly during the 2011 legislative session. They are also seeking an increase in the state income tax on the state's wealthiest residents to make the top rates the same as New York State's.

But the conservative-leaning Yankee Institute for Public Policy says that the rich are putting the most money and the largest share into state coffers.

Yankee argues that the top 6 percent of filers, which covers those earning more than $250,000 per year, pay more in state income taxes than the bottom 94 percent combined. The top 1.3 percent, which represents those earning more than $1 million per year, account for 35 percent of all state income taxes that are collected, according to Yankee.

"Voices is basically 19th century-style class warfare,'' said Fergus Cullen, Yankee's executive director. "I get that. That's where they come from. Their solution is to keep taxing the rich. They're ignoring the fact that the rich pay a hugely disproportionate share.

The debate and the battle of statistics are heating up as the April 15 tax deadline approaches.

"Connecticut's state and local tax system is tilted against low-income workers,'' said Matthew Santacroce, a policy analyst for Voices. "The earned income tax credit is an important step toward leveling the playing field.''

Voices says that state legislators should "raise marginal income tax rates on our state's wealthiest residents to align with those in New York State. Raising Connecticut's rates just on income over $1 million could generate over $400 million annually.''

In addition, Santacroce's report states that legislators should "close corporate tax loopholes that reward companies that ship profits and jobs out of state.''

Studies by the Congressional Budget Office, Census bureau and Tax Policy Center show that the top 20 percent of American households pay about 68 percent of federal income taxes. The bottom 20 percent of households accounts for about 4 percent of the overall income in the country and only 0.2 percent of the federal income taxes that are collected annually.

Cullen, from the Yankee Institute, said that Voices is analyzing the situation incorrectly.

"I think they're the only ones who would describe Connecticut's situation as regressive,'' Cullen said in an interview. "It's just the opposite. Between 40 and 50 percent pay effectively zero income taxes with the earned income tax credit. Even Governor Malloy acknowledges the state can't afford it and is trying to reduce it.''

Cullen was referring to Malloy's plan to reduce the earned income credit from 30 percent to 25 percent for the 2014 calendar year and 27.5 percent for the 2015 calendar year. That change would be retroactive to January 1, 2013 and would save the state $32 million over two years.

State Sen. L. Scott Frantz, a Republican who represents some of the state's wealthiest individuals in Greenwich and New Canaan, said that Voices is "naive'' to say that the tax rates should be the same as New York State because Connecticut prevents most deductions, unlike New York. As such, two workers with the same income in both states would pay different tax rates because New York would allow deductions - which reduce taxable income - that Connecticut does not.