Connecticut’s budget surplus this year is projected to be $470 million. Its rainy-day fund will hit an all-time high of $4.5 billion. Federal coronavirus relief is bringing $6 billion into the state. So the Legislature, naturally, is proposing to raise taxes. Give Gov.
credit for saying no.
Connecticut used to be the low-tax haven with a quick ride to Manhattan, but decades of tax-and-spend policies have eroded its comparative advantage. Today the state taxes capital gains as regular income, with rates up to 6.99%. State lawmakers now want to add a “surcharge” on high earners, meaning a combined cap-gains rate of 8.99% on single filers making more than $500,000.
The argument that it’s only a couple of extra points doesn’t wash, especially once Uncle Sam gets his share. The federal government’s top rate on capital gains is 23.8%, but President Biden wants to lift that to 43.4%. Mr. Biden also wants to add a capital-gains tax at death, in addition to the usual estate tax, so heirs couldn’t inherit assets with a stepped-up cost basis.
This is double taxation atop corporate taxes, and capital gains are not adjusted for inflation. The federal estate tax is 40%, and then throw in Connecticut’s estate tax up to 12%. Financiers are mobile, and estates in many places are taxed at the ultimate low rate of 0%. Add all this up, and you’d have to be high on nutmeg to stick around Connecticut.
The Legislature also wants to create what it bills as a “consumption tax.” People earning more than $500,000 would pay 0.7% of their adjusted gross income. That rate would rise to 1.4% for those earning $2 million, then 1.5% over $13 million. The money would go into a new Equitable Investment Fund, managed by an Equitable Investment Council, which would use it to reduce income inequality, redistribute to certain groups, and so on.
“It’s not a ‘consumption’ tax. It’s just an income tax by another name,” Mr. Lamont said Thursday. “I think I’ve just demonstrated the amount of money we’re putting to work right now, with existing funds, that I don’t think we need to raise taxes.” Last month he argued that jobs are being created, and “I don’t want to do anything to stop that momentum.” Get ready to use that veto pen, Mr. Lamont.
Let’s hope he holds up. “Hundreds of protesters staged a mass ‘die-in’ and blocked the street outside Gov. Ned Lamont’s residence,” the Associated Press reported this month. The activists were mad at Mr. Lamont’s tax opposition and his budget, “which they say falls far short of the massive financial investment needed to make Connecticut more equitable.”
The residents who pay Connecticut’s taxes won’t be seen pretending to die in front of Mr. Lamont’s house, but if the Legislature’s plan goes through, they might be seen checking out a house in Vero Beach or Austin.
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Appeared in the May 24, 2021, print edition.