Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...
Connecticut’s high taxes have become a hot issue in the campaign for the state’s open governor seat.
“We in Connecticut have to work four weeks longer than the average American just to cover our tax bills,” Republican nominee Bob Stefanowski wrote on his campaign website.
The Tax Foundation, a nonprofit that advocates for a simpler tax code and lower tax rates, estimated that it took people in Connecticut and New Jersey until May 3 to cover their combined state and federal taxes for the year. The group’s “2018 tax freedom day” was later in the year for just one state, New York.
He and Democratic nominee Ned Lamont disagree on whether the state’s economic woes and budget problems are the result of its high tax rates.
Lamont and Stefanowski discussed at a recent debate what led General Electric Co., one of the state’s largest employers, to relocate to Boston. Stefanowski, a former GE executive, argued that the company left the state as a direct result of increased business taxes levied by Gov. Dannel Malloy (D) during his eight years in office. Lamont said that there were other factors and downplayed the tax issue.
Lamont is the early front-runner to succeed Malloy, who isn’t seeking a third term. He and Stefanowski also face independent Richard Nelson “Oz” Griebel and Libertarian Party candidate Rod Hanscomb.
Stefanowski has made cutting the state’s taxes the central theme of his campaign. Buoyed by his promise to phase out the state income tax over eight years, Stefanowski emerged from a five-candidate field to win his party’s nomination. On the campaign trail, the former business executive continues to push a tax cut plan that also proposes phasing out the corporate income and business entity taxes over two years, and eliminating gift and estate taxes.
Meanwhile, Lamont, an entrepreneur from a wealthy family, said Stefanowski’s plan won’t work in an opinion piece posted on Medium entitled, “Why Bob Stefanowski’s Plan is Radical and Wrong.” He said the idea failed in Kansas.
“It became a mess, largely because, to use George H.W. Bush’s words, the tax ideas it was premised on were ‘voodoo economics’” he wrote. “Kansas has become the national example of what not to do.”
Lamont’s campaign has also alleged that eliminating the state income tax would raise property taxes dramatically in all 169 of the state’s cities and towns. Stefanowski said Lamont’s analysis doesn’t account for his plans to pare down the size and cost of state government.
Two polls released in August—one by Quinnipiac University, another by Gravis Marketing—have Lamont leading Stefanowski by 13 and 9 percentage points, respectively. A third poll, by Sacred Heart University and GreatBlue Research, shows the race as tighter, with Lamont leading by 4 percentage points, within the poll’s margin for error.
But others see a closer race. The Cook Political Report, Larry J. Sabato’s Crystal Ball, and Governing.com each list the race as a toss-up.
A lot can happen in the race before now and the Nov. 6 election, according to Ron Schurin, an associate professor of political science at the University of Connecticut. A Stefanowski win, along with a Republican takeover of the Senate and House, “is within the realm of possibility,” he said. If elected, Stefanowski would need a Republican-controlled legislature to push through his tax cut proposals.
Democrats currently hold an 80 to 71 edge in the House, and while the Senate is currently deadlocked at 18 to 18.
“Republicans have made steady gains in Connecticut in recent years. There is a lot of out-of-state money flowing into the state, much of it to boost Republican candidates,” Schurin told Bloomberg Tax.
The state’s largest business group, the Connecticut Business & Industry Association (CBIA), has asked candidates running for statewide office to consider lowering taxes in the group’s “Fix Connecticut Campaign.” The group won’t make political endorsements this year, according to Joe Brennan, president and chief executive officer of the CBIA.
“It’s pretty clear to most people that continuing to have major tax increases has been harmful to the business climate,” he said. “Reducing the size and cost of government is preferable to someone who wants to increase the size of government.”
Other observers of state government wonder how Stefanowski’s tax cuts would affect the functioning of state government, where income taxes alone make up more than half of the state’s annual tax revenue.
“The income tax is the one tax in Connecticut that is progressive,” said Jamie L. Mills, director of fiscal policy and economic inclusion at Connecticut Voices for Children, a liberal advocacy group based in New Haven. The state’s income tax is graduated, so that lower income people pay a 3 percent income tax, while those with higher incomes pay as much as 6.99 percent.
The rest of the state’s tax system, she told Bloomberg Tax, places more of a financial burden on low-wage earners. Stefanowski’s plan, she said, “would exacerbate the upside down nature of our tax system.”
The spokesman for the largest labor union representing state and municipal workers called Stefanowski’s proposal “reckless.”
“Stefanowski’s plan is a killshot aimed directly at the state’s middle class and the workers we represent,” Larry Dorman, public affairs coordinator for the American Federation of State, County and Municipal Employees (AFSCME) Council 4 in Hartford, told Bloomberg Tax. The union represents 30,000 workers in the state. “We will be pointing out the dangers of his positions to our members and encouraging them to get out and vote.”
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