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All-Star Taxpayers Already Carrying Load

By FERGUS CULLEN

April 19, 2013

Just like sports teams have all-star players — the small number of people who contribute far more than everyone else to a team's success — states have all-star taxpayers, people who provide a hugely disproportionate share of all taxes.

We call them the rich.

Yankee Institute research on state tax data shows that the top 6 percent of Connecticut taxpayers — those earning more than $250,000 a year — pay as much in state income taxes as the bottom 94 percent combined. The notorious top 1.3 percent of taxpayers — those who earn more than $1 million a year — provide 35 percent of state income taxes.

The bottom 40 percent of taxpayers effectively pay no state income taxes. In fact, thanks to the new state -evel Earned Income Tax Credit passed by Gov. Dannel P. Malloy, thousands of working poor get tax refund checks even though they paid zero state income tax.

That's not enough progressivity for our friends at Voices for Children, for whom higher taxes on the rich are the cure for everything from budget deficits to bunions. With a selective use of statistics, they say the rich don't pay their "fair share" of taxes because their total tax burden as a percentage of income can be lower than that of people of more modest means.

Imagine if we applied this same logic to sports. Last year Curtis Granderson led the New York Yankees with 43 home runs and 106 runs batted in. He started in the All Star Game, and his prodigious production helped the Yankees win the American League East pennant.

Granderson, just one of 50 people who wore pinstripes for the Yankees last year, hit 17 percent of the team's home runs. But Voices for Little Leaguers would say he didn't hit his fair share of them. Granderson hit a home run once every 16 at bats, but a back-up outfielder named Chris Dickerson hit a home run once every seven times he went to the plate.

Never mind that Dickerson batted just 14 times and hit only two home runs all season. The important thing to Voices is that Dickerson's home run rate was twice as high as Granderson's. By this thinking, Granderson wasn't the team's star performer. He was a freeloader who went to the playoffs on the backs of his working-class teammates.

Connecticut could use more all-star taxpayers and more people earning above what you might call the league average — the state's median income of about $69,000 a year. That top 1.3 percent who pay 35 percent of all income taxes? They also pay a disproportionate percentage of sales, estate and real estate transfer taxes. They are often the human talent behind large portions of corporate tax receipts as well. And although they may be rich today, what you don't see is the years of hard work and risk that preceded success.

Increasing taxes on the rich affects the rest of us, too. The 23,000 individual or joint filers in the millionaire cohort are disproportionately entrepreneurs, business owners who employ other people and create jobs.

If you tax something, you can expect less of it. If you tax talented, successful people who employ others, you can expect fewer of them. Not because they will stop being talented and successful, but because a portion of them will choose to be talented and successful somewhere else. They move.

If just one in 20 such taxpayers who signed a tax return this month then turned to a spouse to say, "Honey, I think this is the year we move," it has profound consequences for the rest of us. It means less tax revenue for the state, and fewer jobs and higher taxes for those who stay.

Instead of taxing the rich more, Connecticut should make itself more attractive to the rich who are still here and to the rich of other states by lowering our relative tax burden.

In baseball, free agents can change teams mid-career. All-star taxpayers are free agents too, and we need as many of them playing for Team Connecticut as we can fit on the roster.

Fergus Cullen, the executive director of the Yankee Institute for Public Policy, a free-market think tank in East Hartford. [email protected]