State governments have allocated billions of dollars from recent budget surpluses to reduce pension debt that is likely to be fought over a decade or two from now.

But a new report Thursday from a progressive policy group says the move — which has been championed by Gov. Ned Lamont and lawmakers from both parties — has actually worsened longstanding disparities between the income and economic opportunities, especially among races.

Better use of these funds, according to a Connecticut Voices for Children researcher, could lift thousands of Connecticut families out of poverty.

The New Haven-based political group used the 22nd annual Tax and Budget Forum on Thursday to renew calls for higher taxes on Connecticut’s wealthiest households to expand tax breaks and other support for ‘the working poor and middle-class families – especially those with children.

Report: Prioritizing debt payments over taxpayers is unfair

“Additional pension debt payments have a significant impact on increasing budget inequity,” said Patrick R. O’Brien, director of research and policy for Connecticut Voices. wrote in an analysis of policy options to be considered by the authorities in the future. legislative session.

The state has made annual payments to the pension program for retired state employees and municipal teachers since 2011, a practice it should continue, O’Brien wrote.

But about $5.8 billion of the surplus between 2020 and 2022 has also been diverted to pensions — with another $2.8 billion in surplus projected for after the end. for the fiscal year on June 30.

That big boost in assets means more investment income for retirees and should reduce required annual contributions by about $735 million a year, the agency said. O’Brien.

But even with all these additional payments, the state has years to solve its pension problems.

Connecticut has more unfunded per capita pension liabilities than most other states, with about $40 billion in long-term pension debt — a problem that arose in the seven decades between 1939 and 2010. .the year 2030 or later.

So, while these additional $735 million in savings could be used by the state each year for tax cuts and expansion programs, “a large portion of the benefits will come from generation to generation.” from the spending of today’s generation that has financed the extra money,” O’Brien. wrote.

Importantly, the additional $735 million, which represents 3.3% of the budget’s General Fund, is not enough to finance the changes needed to restore the gross inequality in the system of tax, he said.

CT’s income inequality is among the most extreme in the country

In Connecticut, which has the third highest level of income inequality among the states, the cost is even higher.

In 2020, the median wealthy family — among the top 10% of all earners — earned nearly $3.4 million, he wrote. A middle-income household, defined as the next 40%, makes about $84,400, while the bottom half makes about $21,100.

On average, a wealthy family in Connecticut earns 40.1 times more than the average family, and 160.5 times more than the average poor family.

Complicating matters further, the only two fairness studies commissioned by the state legislature, completed in 2014 and last year, both concluded that Connecticut’s tax system burdens low- and middle-income households.

For example, a family making less than $45,000 a year loses 26% of their income in state and municipal taxes, while those making more than $1.6 million pay 7.1%.

Disparities are even more significant along racial and ethnic lines.

The median white household earned $93,300 in 2021. The median black household earned $58,600 or about 63% of that, while the median Hispanic household earned $54,800 or 59%, O’Brien wrote.

After taxes, however, inequality worsens.

The median white income is $78,900. Among blacks, the median household income is $47,100 or 63%, while among Hispanics it is $44,100 or 56%.

The statewide poverty rate was 10.1% in 2021. Among blacks, it was 15.8%, and among Hispanics, it was 20.1%.

Children living below poverty experience worse outcomes “in all areas, from physical and mental health, to education and labor market performance, to risky behavior and hopelessness,” added O’Brien, citing the National Academy of Sciences’ 2019 strategic plan to reduce child poverty.

Expanding tax relief for low-income and middle-income families

Officials here can begin to reverse child poverty through state tax reform, Connecticut Voices says, in several ways:

  • Create a new cost-of-living adjustment to ease the burden of inflation on households making less than $100,000 a year.
  • Offers continuous loans of up to $600 per child to low- and moderate-income households.
  • Retaining the previously approved increase in the earned income tax credit for low-income working families from 30.5% to 41.5% of the federal EITC beginning in the 2023 mining year.
  • Extension of income tax relief for tenants.

Additionally, Connecticut Voices recommended increased funding for early childhood care and education and staffing for state and municipal agencies.

The political group also urged government officials to revive the “Baby Bonds” program. The 2021 legislature authorized $600 million in loans — $50 million a year from 2023 to 2034 — to help low-income families.

To pay for these programs, Connecticut Voices notes that the state needs to cut more than $735 million in required pension contributions each year.

A New Haven political group has renewed its call on wealthy households to pay more.

An increase in the top income tax rate from 6.99% to 7.99% would generate an additional $300 million. Setting the top rate at 8.29%, and applying it to families earning more than $1 million, would generate $500 million a year.

The state could also raise an additional $150 million to $305 million through additional income subsidies for the wealthiest households.

And statewide property taxes, limited to properties with a market value of $1.5 million or more, could total between $85 million and $195 million annually.

Lamont opposed similar tax hike proposals in his first term. The governor, a wealthy businessman from Greenwich and middle-income earner, has said he believes raising taxes on Connecticut’s wealthiest taxpayers could run away from the state.

Instead, the state should focus, Lamont said, on avoiding tax increases for all income groups and trying to encourage more taxpayers to move to the state.

But Connecticut Voices on Thursday gave state officials another option to fund tax cuts for low- and middle-income families: Try to save a little more.

The state has amassed huge surpluses over the past five years, largely because of a savings program that prevents lawmakers from spending a portion of quarterly taxes related to investment and income. company.

The threshold was initially set at $3.15 billion, although it is adjusted annually to reflect increases in personal income, and is now closer to $3.3 billion.

Since its inception, however, this savings program has forced the state to save $1.5 billion, on average, each year. And Connecticut Voices asked a question some lawmakers started asking last year: Is the state saving too much?

Current law requires authorities to use these savings — as long as the treasury is full — to pay down debt.

But Connecticut Voices recommends changing this provision to allow the excess funds to be used to support a fairer tax system or support basic programs that help low- and middle-income families.

House Speaker Matt Ritter, D-Hartford, one of the keynote speakers at Thursday’s budget forum, told the CT Mirror that it is important not to repeat the deficit that have plagued public finances for most of the 2010s.

But if advocates can show that the proposed new investment — in tax breaks or other programs — is moderate and long-term, he believes more lawmakers will be willing to listen.

Ritter said she wants to see more support for early childhood development, children’s mental health and tax cuts for the middle class — “but do it in a way that’s safe and sustainable, ” he said, “which may live on for many years to come.”

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