As a result of the American Rescue Plan (e.g., the $1.9 trillion COVID relief bill) becoming law, Conn. state government will receive approximately $2.6 billion and our cities and towns $3.4 billion. Given this, we should pause to consider what a possible once in a life-time opportunity these funds may be creating for the people of our state both now and in the long term.
Here’s the financial background. The Conn. two-year state budget for fiscal years 2022-2023 now under consideration by the General Assembly was projected to have just under a $2 billion deficit before the American Rescue Plan was signed into law. Our state’s rainy-day fund is already at a record level of $3.5 billion. So, for the math, we are about to be flush with cash to the tune of approximately $4.1 billion, derived from the reserve of $3.5 billion plus $2.6 billion state COVID relief funds and less the $2 billion deficit, all resulting in a balanced budget.
However, we must remind ourselves that we have material financial challenges. To wit, we have one of the highest total tax rates in the country and the highest debt obligation of any state, allocating 31 percent of state revenue to bond, pension and retirement health obligations according to Moody’s Analytics. Our maximum marginal tax rate is the highest in the U.S. coming in at 6.99% vs. Massachusetts at 5.2% and 6.37% for the second highest tax bracket for New Jersey and New York, all according to i-calculatorUS. Wallethub.com puts Conn. at 50th in overall effective state and local tax rates and 47th and 48th in vehicle property taxes and real estate taxes, respectively. According to recent studies by two national moving companies, United and North American Van Lines, these facts combined with a so-so job market (with Amazon passing over Conn. for a second time to locate here) are two of the reasons we saw more residents move out than relocate to CT in 2020, all mainly led by those 55 years old and over. Our state ranked 50th in job growth in 2019 and last for wage growth for the last 11 years. According to the CT Department of Labor’s report released last November, Connecticut ranked 50th in job growth in 2019; and, we lost 122,500 jobs in 2020. And to add to the grim news, our state was also last for wage growth from 2010 to 2019. Next, take Hartford, our capitol city. It ranked 46th among state capitols in unaffordability, economic well-being, education, health and quality of life. The truth of the matter is that we have something fundamentally wrong with our state economy. So, what do we do with the cash of $4.1 billion and now a balanced budget? Maybe it’s time for a corporate and individual income tax cut.
Successfully coping with the COVID-19 pandemic of course is top priority. Next, we must focus on the CT economy, to make our state a destination for new and expanding job markets. We need to move ahead on a series of serious and material tax reduction changes with a view to bringing more jobs to our state. A full employment economy is bound to expand and that should be our goal. Let’s do a little more math.
Decreasing our corporate tax rates, and individual income tax rates from 6.99% to a lower, more competitive rate would mean a loss in revenues that would now be affordable, even if in a single fiscal year; though affordable however, doing so in a single year may not be prudent. Better would be a phase-in over three or four years making for a sound decision and a safe step-by-step process to ensure we have it right. From a benchmarking standpoint, let’s look at what other states are considering or have done as of this writing and as per my research. The states of Georgia, West Virginia, Wisconsin, Missouri, Pennsylvania and Oklahoma have advanced legislation to provide a wide variety of tax cutting reform measures. They range from cutting taxes and raising the standard deduction on state income tax returns, proposing a full phase out of the state income tax, cutting taxes by $540 million mainly by allowing people who received Paycheck Program loans from the federal government to deduct related purchases on their 2020 state taxes, to reducing corporate taxes, and personal income taxes to below 5% all-the-while even phasing out the corporate income tax over five years.
Tax reforms like these will have benefits both in the short and long terms. It’s likely our bond rating would improve from its current A+ rating, reducing the cost of debt for new financings or possibly allowing some paydown of debt, or both. And, tax cuts could be a negotiating tool for lowering pay increases with state pensioners. The point is that cutting corporate and individual income tax rates could have a multi-faceted positive effect for the greater good. It’s time Conn. act in some form as these examples demonstrate affordability. Best of all, they make for good common sense. At a minimum our options should be put through rigorous analysis so as to not miss any opportunity and realize what could be a new beginning for the state. If not, we will find ourselves in a continued economic stalemate, still last in many categories and having squandered away a once in a lifetime opportunity.
Tony Turner most recently served as a member of the Greenwich Board of Estimate and Taxation and former founder and CEO of an online regulatory software company based in Conn; he is currently the founder and CEO of My Voting Power Greenwich (MVPGreenwich), a non-partisan, non-profit organization dedicated to enabling ease of voting and more informed voter decisions by 18–35-year-olds. He resides in Old Greenwich, CT.