Department of Revenue Services Commissioner Mark Boughton said the state of Connecticut is gathering more extensive data on how Connecticut’s taxes affect residents so the Lamont administration can use that data to develop a “North Star” of tax policy – basically a strategic direction as Connecticut has experienced years of budget surpluses following more than a decade of budget crises.
“For literally decades we have never had a tax strategy, a tax policy. We don’t have a North Star that we’re working towards,” Boughton said during a panel on state taxes at the Let Connecticut Work conference hosted by the Yankee Institute. “We’re paying the price for that, for decades, for ignoring not having a tax strategy by operating almost in a crisis mode.”
“Gov. Lamont has asked our team to work on developing a tax strategy using data that is relevant and new that we’re currently collecting,” Boughton continued. “For decades, we never collected data off your income tax filing. We don’t know where you’re living, how you’re living, how you derive your income and that’s important for folks in the legislature to make strategic decisions about where the state should go in terms of its policy.”
The push to develop a strategic vision for taxation in Connecticut comes as the state is projected to run a budget surplus for the fifth year in a row and pay down more of its pension debt that has plagued Connecticut’s budget for decades.
Connecticut Comptroller Sean Scanlon announced a fiscal year 2023 budget surplus of $550 million, with $1.8 billion going to pay down Connecticut’s state employee and teacher pension debt. The debt payments are made under the state’s volatility cap, part of the 2017 bipartisan budget deal that deposits surplus revenue from volatile Wall Street earnings into the budget reserve fund and then, when the reserve fund is maxed out, into the pension system.
The push for a taxation North Star also comes following a budget deal in 2023 that saw a modest reduction in Connecticut’s income tax for working- and middle-class families and an increase in the Earned Income Tax Credit – a change pushed for by the Lamont administration that passed on a bipartisan basis.
Boughton, however, urged caution when it came to calls for sweeping tax cuts, particularly as revenues have been declining. “We have to be very measured in our approach to cuts going forward,” Boughton said. “That’s because I don’t want us to have to back-pedal, to take back the cuts we already gave. So, it’s a very slow, measured approach to what we’re doing. At the same time, we need to develop a strategic tax policy.”
The need for caution was echoed by Rep. Maria Horn, D-Salisbury, co-chair of the General Assembly’s Finance, Revenue and Bonding Committee, who said she is hoping for a “soft landing” if revenues come down. The state is bolstered by a Rainy Day Fund with more than $3 billion in savings if the economy takes a dip and state revenues dry up.
“The truth is, we don’t know, we have to remain flexible, which is why I do not really go in for great, sweeping changes from one direction to the next because for the average citizen, for a business, for anyone, that’s a terrible way to plan your life,” Horn said. “I think a simpler code going forward helps businesses, helps the people who are trying to do the right thing as opposed to those who are trying to find loopholes.”
Horn said she is also working with DRS to look at tax credits and incentives offered by the state to see if they are really effective, noting that some of them are “all over the place.”
“It’s bonkers. That is hard, messy work to go through and try to come up with that North Star of direction, where we want to move in a steady, incremental pathway,” Horn said during the panel discussion. “Some people are going to lose that benefit that they’ve had along the way, some will lose, some will gain as we try to craft some coherent set of policies.”
Keynote speaker of the conference – former Republican House Leader Themis Klarides, who helped craft the 2017 policies that have led to Connecticut’s pension debt paydowns – said in the past Connecticut’s “North Star” was basically just grabbing money wherever it could to patch budget holes.
“Our North Star was grab as much money as you can to make the bottom-line work,” Klarides said.
Boughton hinted at the upcoming release of Connecticut’s Tax Incidence Report, which measures the effect of Connecticut taxes on residents at different income levels, saying that Connecticut’s onerous property taxes skew the progressivity of the state’s tax structure.
“We’re finishing the Tax Incidence Study right now, when you lay down that property tax, that makes living in Connecticut completely out of the question for many people,” Boughton said. “It is a tax that grinds on and on.”
“If we understand the impact of the property tax, that means we need data to do that, but that will help them craft a real North Star that everybody, beyond administrations, can work toward and we can all agree on as a community in Connecticut, this is where we need to go, these are the changes we need to make, but right now, many times unfortunately because we don’t have the data, we’re flying in the dark,” Boughton said.
The Tax Incidence Report measures the effect of Connecticut’s tax structure on different income levels and is due out every two years.
Boughton said he believes Connecticut’s budgetary “immediate crisis” has passed and that the state has turned a corner – something all panelist members, which included real estate developer Bob Scinto and Ken Coomes of Sure Merchant Services — agreed with.
“I think the governor is on point by saying we need to develop a long-term strategy and a North Star as to where we’re going with taxes and how that impacts the residents of our state,” Boughton said. “So, we have work to do.”
Editors note: Connecticut Inside Investigator (CII) is an independently managed program of Yankee Institute. CII has management separate from Yankee Institute which oversees its daily operations and determines its content, completely independent of Yankee Institute.
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I suspect tax revenue is top heavy, dependent on capital gains from the stock market and other investments.
As a resident of Danbury, CT, I am concerned about the City is moving in housing for people who are challenged keeping a roof over the head. While this is an important issue, it seems to me that there is a strategy to bring all homeless into Danbury to get them out of some of the more posh communities. Truly, I hope I am wrong, but housing plans are exploding beyond the Danbury need.