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More Of State's Poorest Are Feeling Tax Burden

Threshold Has Never Been Adjusted For Inflation

March 31, 2007
By COLIN POITRAS, Courant Staff Writer

The state income tax is becoming a burden more and more to Connecticut's poorest working families, a report issued this week by a nonpartisan research group says.

When Connecticut's state income tax was implemented in 1991, the threshold at which a family of four started paying the tax was $24,100 or 73 percent above the federal poverty line at that time. It was the highest threshold in the nation for a state income tax.

Today, that threshold stands just 17 percent above the poverty line, a drop of 56 percentage points and the largest percentage decline in the nation, according to an analysis by the nonprofit Center on Budget and Policy Priorities based in Washington, D.C.

Although most of the 42 states with income taxes have adjusted for inflation and increased their tax thresholds relative to the poverty level, only Connecticut and Alabama have not increased their thresholds since 1991, the report said. Alabama recently passed legislation that will begin to raise its threshold later this year.

Under Connecticut's current tax system, wealthy residents pay a far smaller share of their income in state and local taxes (4.4%) than do lower-income residents (10%) and middle-income residents (9.5%), according to Connecticut Voices for Children, a nonprofit family advocacy group in New Haven.

Connecticut Voices associate researcher Douglas Hall said the state's inability to adjust its tax threshold for inflation is becoming more pronounced each year.

"The erosion of Connecticut's tax threshold by inflation makes Connecticut a harder place for working parents to make ends meet and raise their children," Hall said.

Hall said Connecticut's high cost of living and stagnant tax threshold are creating a financial crunch for low-income families. A two-parent family of four earning just $24,100 - the 1991 threshold - had to pay state income tax last year, according to Hall's research. If the tax threshold had been maintained at 73 percent of the federal poverty level, a family of four would not start paying state income tax until they were making at least $35,664 after all tax exemptions and credits are applied, Hall said.

Voices for Children says it believes Connecticut can improve its tax situation by taking the following steps:

Increasing the tax threshold each year by indexing state income tax exemptions to increases in inflation

Creating a state earned income tax credit

Making the state tax structure more balanced among families of different incomes

Currently, 21 states, including New York and Massachusetts, provide earned income tax credits, said Shelley Geballe, the president of Connecticut Voices.

Senate Majority Leader Martin M. Looney, D-New Haven, has introduced legislation this year calling for the state to enact an earned income tax credit that would amount to 20 percent of an eligible family's federal income tax credit. Looney said the new tax program would cost the state about $53 million annually.

Under the federal program, if a family's income tax liability is less than the amount of the credit, the difference is paid to the family. Last year, the federal tax credit provided more than $261 million to needy Connecticut families.

State Rep. Kevin M. Delgobbo, R-Naugatuck, a ranking member of the legislature's appropriations committee, said he understands the need to help struggling families, but he's not sure creating an earned income tax is the best way to do it.

"Once you start to change that schedule, it just means the rest of the taxpayers are gong to have to pay more," Delgobbo said. "I don't think they are talking about reducing spending."

Gov. M. Jodi Rell would be willing to review a proposed earned income tax credit if it was presented to her, Rell's spokesman Rich Harris said.