As you may remember, my committee, Program Review and Investigations, is studying our state and local tax system. This week we received the second part of our research from the nonpartisan committee researchers.  This report is the result of considerable research along with the ideas and concerns expressed in the public hearings across the state.  I thank all of you for your valuable ideas.

In these last several months, we have learned that a good tax system is balanced, with about one-third of revenues coming from income taxes, one-third from sales and use taxes, and one-third from property taxes.  Over time, Connecticut’s tax system has tipped out of balance so that property taxes are funding about 40% of the burden.  To remedy this problem, we asked our staff to review experiences in other states, and to suggest options for change that will still comply with the elements of a good quality tax system.  These are defined by the National Conference of State Legislatures with the following characteristics:

• Complementary - tax bases are not in competition, tax policies are not contradictory, and revenue-raising authority matches with financial responsibilities.
• Reliability – produces revenues in a reliable manner, which involves the three factors of stability, certainty and sufficiency.
• Balanced – rely on a balanced mix of a variety of taxes.
• Equity – distributes tax burden according to ability to pay and treats taxpayers of comparable circumstances similarly.
• Facilitates Compliance – simple to understand and implement.
• Fairly Administered – gives taxpayers confidence that its provisions are uniformly applied.
• Economically Competitive – should neither impede a state’s economic growth nor put businesses at a disadvantage with higher rates or compliance costs than other jurisdictions.
• Neutral – not used to influence market decisions or economic behavior.
• Accountable – open and transparent tax policy.

Besides analyzing the NCSL principles as they relate to Connecticut, committee staff also performed an extensive review of the tax policies in other states. Our staff has presented several options for changes to our tax code, along with the implications of such changes.  As these proposals work their way through the legislature, there will be additional public hearings on these or additional options to rebalance our tax system: 

• Decreasing the sales tax to 3.5%, but levy it on a broader base of goods and services.
• Allowing municipalities to levy an additional local sales tax.
• Freezing property taxes and deferring payment on the capital gain until the sale of the property.
• Increasing income taxes on incomes over $250,000.
• Changing our corporate tax credit programs.
• Many other options or combinations of options.

Of course, it is impossible to provide more than a broad overview of the tax study here.  However, the two reports generated by the tax study, including findings and options for legislative actions, are available online at www.cga.ct.gov/pri. I urge you to visit the committee website to check out the tax study, and other studies completed by PRI.
 
Such a large change is difficult, but I believe it is necessary.  I am interested in your comments.  I can be reached at the Capitol at 1-800-842-1421 or you can send me an e-mail at Catherine.Cook@cga.ct.gov.