(The Center Square) – While Connecticut is working with a budget surplus, a public policy organization is recommending the state lower taxes to improve its economic outlook.
“I think Connecticut residents are far less interested in whether we have a balanced budget and what our fiscal outlook is when they’re not safe in their homes, when thousands are unemployed and gas prices are going up,” House Minority Leader Vincent J. Candelora, R-North Branford, said according to the CT Mirror. “Government is working for itself. It’s not working for the people of Connecticut.”
Ken Girardin, director of policy and research at Yankee Institute, told The Center Square there a dew reasons for the state's surplus.
"Among other things, the more volatile portion of personal income tax receipts flow into the state's reserve fund, from which those funds essentially pay for debt and legacy costs rather than new programs," Girardin said. "This volatility cap was created in 2017 and was the main reason Connecticut was among the best-prepared states for the fiscal turbulence of early 2020."
Girardin said the state's revenues have been strong because of three rounds of income tax hikes in 2009, 2011, and 2015 that were done on a permanent basis to address temporary budget shortfalls, leading the state to routinely take in more cash than previously needed as the economy recovered.
"The state's PIT rates are their highest ever (since the 1991 implementation of the tax)," Girardin said. "Flattening the tax down from a top rate near 7% toward Massachusetts's 5% would be a good use of funds by reducing the tax savings of shifting full-time residences to lower-tax states (that's especially important as long as SALT deductibility remains capped). It's not clear how revenues will perform long term, however, because COVID cash from the feds has patched over Connecticut's likely unsustainable spending trends."
Many of the state's lawmakers are now fighting for tax reform for both residents and businesses.
"Yankee has suggested using the surplus (and expenditure cuts and tax reform) to eliminate the state corporate income tax to address our sluggish job creation," Girardin said. "The state added essentially no private-sector jobs between 2017 and early 2020, and we remain at least a year away from recovering our losses from the lockdown period."