During tax season, Conn. residents in a tight spot

As New Haven residents mailed in their state and national income taxes by yesterday’s April 15 deadline, some officials and advocacy groups used the filing date to reflect on the bevy of taxes — sales, income and property — that they say are straining pocketbooks past the breaking point.

Down at the Brewery Street post office, a middle-aged woman said that despite appearances, she had not in fact waited to the last day to do her taxes.

A man enjoys a doughnut on tax day.
Erica Bergman
A man enjoys a doughnut on tax day.

“I wanted to keep my money as long as I could,” said the woman, who asked to be identified simply as Kay.

But which taxes were the most painful?

“Property,” she decided.

Meanwhile, in front of the post office — as Dunkin’ Donuts employees handed out free donuts, coffee and stamps to last-minute tax payers — city officials organized a brief ceremony to recognize the efforts of volunteers with the New Haven Economic Security Coalition, the local municipal branch of the Internal Revenue Service-sponsored Volunteer Income Tax Assistance. The program offers free tax preparation to low-income and elderly residents.

Deputy Community Services Administrator Ronald Manning, who presided over the ceremony, said many city residents are unaware of the national stimulus package for which they may be eligible.

“It’s mostly about being able to document their income, and document those items that are eligible for deduction,” he said.

But according to one local advocacy group, Connecticut Voices for Children, low- and middle-class families are still being hit disproportionately hard, paying a higher percentage of their income in state and local taxes than do wealthier Connecticut residents.

Connecticut Voices released a report — based on an analysis from the national Institute on Taxation and Economic Policy — suggesting that the wealthiest 1 percent of Connecticut residents paid only 4.7 percent of their income in state and local taxes, while middle-class families paid 9.6 percent of their average income of $55,100 and the poorest 20 percent of families paid a total of 10.9 percent of their incomes, which averaged only $15,100.

Connecticut’s income progressive income-tax system, the group argues, is not progressive enough to offset regressive property and sales taxes.

Shelley Geballe, the organization’s president and the report’s co-author, said several measures that have been reported out by the state’s Finance, Revenue, and Bonding Committee could help address the problem, but more action is needed. Increases in Payment In Lieu Of Taxes funding from the state might allow municipalities to reduce property taxes, but lowering sales taxes should also be a priority, she said.

“Making regressive taxes less a part of the equation,” she said, “is a step in the right direction. … If you eliminate many of the exceptions from sales tax — storage of yachts over the winter doesn’t make much sense — while keeping those for [items such as] food and pharmaceuticals, you can reduce the [overall] rate.”

Providing more state funding for K-12 education and raising the percentage of the top tax bracket, Geballe added, would allow municipalities to lower property taxes.

But Sen. William Nickerson, the ranking Republican on the state finance committee, said Connecticut already has an overly stratified tax system.

“Advocates of restructuring the tax system always want to raise taxes on the wealthy,” he said. “But we already have one of the steepest income taxes in the country. Of those who do pay [state income taxes], the top 5 percent pay the same as the bottom 95 percent put together. … That’s why we always swing from surplus to deficit.”

He said he hopes to see the elimination of the annual $250 business entity tax on almost every business in the state, but that he is not “overly optimistic” that that will happen. Other tax proposals being considered by the state legislature, including a tax on parcel delivery, would be unhelpful amidst a recession, Nickerson said.

Connecticut Voices, however, does not see a problem with the wealthiest residents’ paying higher percentages of their income. According to the statistics the organization released, in 2006, those earning more than $750,000 paid 33 percent of the state’s total revenue from income taxes — a figure this organization thinks is too low.

But those same residents also reported 31 percent of the income reported in the state.

The crunch from state taxes has only been exacerbated by national tax policy, said New Haven Rep. Patricia Dillon, who went door-to-door on tax day — “not the wisest” decision, she said afterwards.

“The Alternative Minimum Tax is killing two-income households,” she said. People she spoke with were angry “to find out that they cannot deduct their property taxes [from the federal income tax],” which she said they already cannot afford.

The Alternative Minimum Tax was enacted in 1970 to ensure that high-income families did not accumulate so many deductions as to avoid paying income taxes altogether, by instituting a flat rate with no deductions. But since it is not indexed to inflation, families with increasingly smaller incomes now pay the AMT.

Dillon said she is not sure what the solution is, but something has to change.

“Additional PILOT funding might help, but it goes directly to the cities,” she said. “I don’t know if that will reduce people’s taxes, so it’s up to the cities to cut people’s taxes.”

But at least in New Haven, that is not likely.

Ward 25 Alderwoman Ina Silverman, vice-chair of the Board of Aldermen’s finance committee, said city taxes would not go down unless “fixed costs go down,” from healthcare premiums to electricity to oil, or unless there were massive layoffs. So lower city taxes is not a probable scenario, she said.

“There are a couple of [aldermen] going to Hartford tomorrow … to get more money from the state, any way we can,” Silverman said, just to get enough to meet the proposed municipal budget. “We’re millions in the hole.”

Although New Haven Mayor John DeStefano asked the state for enough PILOT money to balance the city’s budget for the next fiscal year, it is not yet clear how much money the state will ultimately provide or what programs and departments the city would cut if not enough funds are forthcoming, Silverman said.

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