Saturday, April 14, 2012

Connecticut's income is high, but its taxes are average | The Connecticut Mirror

Connecticut's income is high, but its taxes are average

Washington -- Connecticut's "Tax Freedom Day" is May 5, not April 17, when state and federal returns are due.

That's according to the Washington-based Tax Foundation, which calculates May 5 as the day Connecticut residents have earned enough money to pay off their total tax bill.

The foundation says Connecticut's "Tax Freedom Day" is later than that of any other state or the nation as a whole, which this year coincides with the tax filing deadline of April 17.

But when it comes to the contentious issue of taxes, things aren't quite that simple.

It's true that Connecticut ranks second, after New York, in the amount of state taxes residents pay per capita -- $1,616 in 2010, the Tax Foundation estimated.

But that number is misleading. Connecticut is home to many individuals and couples who are taxed at the top of the state's graduated rate, which has been increased by the Malloy administration to 6.7 percent.

About 60,000 Connecticut filers will face that top tax rate this year, including 9,000 or so residents whose incomes are $1 million or more.

"Connecticut's per capita state tax rate is high, but it's not because of any choices of any state officials," said Matt Gardner, executive director of the Institute on Taxation and Economic Policy. "It's because the state has a lot of rich people, and rich people pay a lot of taxes.

"It's as if Bill Gates goes into a coffee shop," Gardiner said, "the average tax rates of those people in the coffee shop goes way up."

The greatest number of Connecticut's 1.5 million taxpayers will pay a state tax rate of about 5 percent.

"Connecticut's state taxes are sort of the middle of the pack," said Mark Robyn, a Tax Foundation economist. "A lot of states have slightly lower rates, but some have higher."

Some of those states with high rates include California, with a "millionaire's tax" of 10.3 percent; Oregon, with a top rate of 11 percent; and New York with a top rate of 7.8 percent.

On the other hand, Massachusetts, once derided as "Taxachusetts," because of its high taxes, now has a flat state tax of 5.3 percent.

But Massachusetts taxes capital gains at a 12 percent rate while Connecticut taxes capital gains at the income tax rate. Another difference between the states: Massachusetts offers more credits and deductions to state taxpayers than Connecticut.

In another move by the Malloy administration to make state taxes more progressive, Connecticut this year joins about two dozen other states that will give its poorest residents a tax credit. This, in effect, lowers the tax rate of people who earn lower wages, and it may result in their receiving a refund.

"It's about time," said Wade Gibson, senior policy fellow and tax and budget expert at the nonprofit Connecticut Voices for Children. "We were the last New England state to have an earned income tax credit."

Connecticut's sales tax rate is also in line with that of many other states at about 6.35 percent.

But its property taxes, a system of 170 different rates imposed by cities and towns, can be quite high.

Those property taxes can fall harder on low- and middle-income people than on wealthier homeowners because the levies represent a smaller percentage of wealthier families' total income.

"This is one of the reasons you can pay much more taxes if you are poor than if you are in the 1 percent," Gibson said.

The Tax Foundation ranked Connecticut 10th out of the 50 states and District of Columbia in the amount of property taxes paid.

Gian-Carl Casa, spokesman for the Connecticut Office of Policy and Management, said there's a reason for the stiff property tax.

"We do have high property taxes because we don't have county taxes," he said.

Many states require residents to pay state, county and property taxes. But in New Hampshire, the state that has the highest property taxes rate in the nation, residents pay no other taxes to the state.

Because of its wealthier population, Connecticut residents will also pay more in taxes to Uncle Sam this year than taxpayers in many other states, including some that are much larger, like Indiana and Iowa.

Individual filers from the state are expected to send Washington nearly $60 billion, besides the approximately $8 billion they will pay in state taxes.

While Connecticut residents pay a lot of federal taxes, they receive much less from Washington than do the residents of many poorer states.

A report by the Tax Foundation showed that Connecticut received about 67 cents from Washington for every dollar paid in federal taxes.

 




1 comment:

  1. Inheritance taxes sometimes take into account the personal circumstances of the taxpayer, such as the taxpayer’s relationship to the donor and his net worth before receiving the bequest.

    how can I protect my assets

    ReplyDelete