Just as the needs of the state’s families are growing during this recession, the revenues that the state has to meet those needs have declined. Rather than address the long-term revenue needs of the state, policymakers have relied heavily on one-time fixes and budget cuts to keep the state budget afloat, and have prioritized spending cuts over ongoing revenue increases by a factor of almost three to one. These actions have reduced public investment at the time when residents need it most and have left state budget deficits of close to four billion starting in Fiscal Year 2012. To meet this gap between growing needs and reduced resources, we need to take a balanced approach to reducing the deficit that includes revenues and that preserve the services that families and communities need.  As part of a balanced approach to solving our budget deficit, policymakers should consider several options:

• Close corporate tax loopholes through mandatory combined reporting.   The "Las Vegas Loophole" allows large, multi-state corporations operating in Connecticut to avoid paying their share of taxes by artificially shifting profits to states without corporate income taxes, like Nevada.  This gives an unfair advantage to multi-state corporations over local, Connecticut-based businesses.  Closing this loophole through mandatory combined reporting would create a more level playing field for Connecticut businesses and bring in an estimated $88 million in needed revenues.
   
• Create a Revenue Accountability Commission.  Connecticut is facing unprecedented state budget deficits, yet has not comprehensively reviewed its revenue structure in 20 years. In situations similar to the fiscal crises Connecticut now faces, many other states have chosen to convene commissions to study their revenue streams. These states have recognized that the first step to a solution will be to understand exactly how their present revenue systems are broken. The Revenue Accountability Commission bill (H.B. 5534) calls for a diverse set of stakeholders to study the state's revenue structure.
   
• Evaluate and reduce tax expenditures. Connecticut’s state tax code contains about $5 billion in credits, deductions, rate reductions, and exemptions that favor some business and individual activities over others and diminish state revenue.  Yet there is no ongoing evaluation of whether these tax expenditures are effective or are an efficient use of resources.  In a fiscal climate where services essential to the health and well-being of children and families are being threatened, a full evaluation of Connecticut’s tax expenditures should be conducted to determine the cost effectiveness of each tax expenditure.
   
• Delay or cancel reductions in the gift and estate tax.  Confronted by budget cuts that will harm the state’s children and families, Connecticut cannot afford a tax reduction for the state’s wealthiest individuals.  If Connecticut cannot afford a sales tax rate reduction, which would confer significant benefits on low- and middle-income families, it surely cannot afford an estate tax reduction that would benefit only the very wealthiest.  The Office of Fiscal Analysis projects that over $75 million will be lost from the Connecticut budget in FY10 – FY11 due to scheduled changes in the unified gift and estate tax.
  
  
• Make the state income tax more progressive. Even after Connecticut’s recent, modest income tax increase for high-income households, Connecticut’s state and local tax system remains highly regressive.  After federal tax deductions, Connecticut’s wealthiest families pay less than half the proportion of their income in state and local taxes (4.5%) than middle-income families (9.9%) and low-income families (12.0%).   By expanding the progressive income tax to what had been proposed by the Better Choices coalition, Connecticut could potentially raise between $200 and $600 million. 
   
• Increase and offset the sales tax. A one percent increase in the Connecticut sales tax to 7% could generate over 600 million dollars in new revenue and would bring it in line with the sales tax rates of nearby states like Rhode Island (7%), New York City (8.25%), and New Jersey (7%).  The substantial revenue-generating potential of the sales tax, however, must be weighed against the higher burden placed on low- and middle-income families. While many of the programs and services that could be saved through generation of new revenue would benefit the poor, those same people would be paying the largest proportion of their income in new taxes.  The regressive effects of a higher sales tax rate, if enacted, should be offset by creating a state Earned Income Tax Credit and a Small Business Property Tax Credit.
   
• Raise taxes on unhealthy products.  Raising taxes on items with negative health consequences can raise revenue as well as discourage unhealthy behavior, helping to reduce health care spending.  The excise tax on cigarettes was raised in FY09 from $2.00 a pack to $3.00 a pack and is projected to raise 100 million dollars in revenue for FY10.  Similar increases in taxes could be considered for alcohol and imposed on other unhealthy products like soft drinks or fast-food.  These taxes, which are a type of consumption tax, are regressive; adoption of a state EITC could help address this.
   
• Restore the Petroleum Gross Earnings Tax rate from 7.0% to 7.5% .  A 2008 law eliminated the 0.5% increase in the Petroleum Gross Earnings Tax (from 7.0% to 7.5%) that was scheduled to occur on July 1, 2008, resulting in an estimated 30.8 million revenue loss in FY 2009.  This rate, under current law, is scheduled to increase to 8.1% on July 1, 2013.  Restoring the rate to 7.5%, as had been intended by a 2005 law, would restore these lost revenues.

Take action

• Contact your state legislators and the Governor. Tell them you support the Better Choices coalition revenue solutions for the state budget, not program cuts.   (Look up your state legislators.)
  • Governor M. Jodi Rell  1-800-406-1527
  • House Democrats   1-800-842-1902
  • House Republicans  1-800-842-1423
  • Senate Democrats   1-800-842-1420
  • Senate Republicans   1-800-842-1421
• Send a letter to the editor of your local newspaper.
• Spread the word about revenue solutions to your friends, family, and community organizations, and encourage them to reach out to their legislators.
• Sign up for e-mail updates from CT Voices for Children

For more information

CT Voices publications

• Connecticut Needs a More Balanced Approach to Resolving the Budget Deficit
• A Revenue Accountability Commission: The Right Step Toward Securing Connecticut's Fiscal Future
• Closing Corporate Tax Loopholes Through Mandatory Combined Reporting
• Connecticut's Wealthy Pay Smaller Share of Income Than Most Residents in State and Local Taxes
• The Impact of the Governor's Proposed Fiscal Year 2011 Budget on Children
• Other CT Voices state tax & budget publications

Additional resources

• Better Choices for Connecticut revenue plan
• State Budget Documents resource page