Taxation

In general, people like services but don’t like paying taxes. Taxpayers should expect value, integrity, and transparency at every level of government. To meet these three objectives, we need to:

DIVERSIFY MUNICIPAL REVENUE STREAMS

Despite widespread agreement that the current municipal dependency on property tax revenues is a defective system, the state has been unable to make progress on reform or an alternative. The key to any solution is diversity in revenue streams. Diversity helps to mitigate economic as well as demographic fluctuation in the tax base. Allowing municipalities to keep a portion of the sales, income, and other tax currently generated within their municipality will achieve this result. We must avoid adding a new layer of taxation, the often talked about regional or local tax!

This has several benefits, and would be fairly simple to implement. Diversification shifts the tax burden from property owners alone to include consumers and wage earners. Income, sales, and gasoline taxes generated within municipalities are easily identifiable through tax filings. To offset the state’s loss of revenue, some state grant and reimbursement programs would be eliminated. Additionally, some services could be administered at the local level, thereby reducing the current bureaucratic overload. This would provide for a more efficient use of funds and allow the state to focus on the services that can best or only be provided at a state level.

Other examples of local revenue sources include local law enforcement fines and local fees tied to registrations of boats and vehicles. While some revenue is derived from such sources, municipalities generally have no control over the level of the fees.

As can be imagined, there are myriad examples of possible revenue sources, none of which will be agreeable to everyone. If we start with the view that the current tax system is broken, and that diversified revenue streams for any tax program is good policy, a tax package will be crafted that, while not perfect, will be greatly improved.

USE FUNDS FOR THEIR ORIGINAL INTENTION

Many of our state taxes and fees were implemented under the premise that they were to be used for a specific purpose. Recently, funds have been “raided” for use in the general fund. This dilutes governmental integrity. Assessing fees and taxes to be paid for by those who use the services is good practice, but once in place, funds must not be diverted. As a simple example, the fees collected for hunting and fishing licenses should support environmental and wildlife management programs, not the general fund. From gas and cigarette taxes to Long Island Sound license plate fees, we will return integrity to the budget process by using the funding for its original intention and permitting the users to help identify the level of service they are willing to pay for.

DECREASE THE LEVERAGING OF OUR CURRENT TAX POLICY

Regardless of the philosophy of a progressive vs. flat tax, the fact of the matter is, if a disproportionate amount of revenue is dependent on a narrow source, the possibility of wild fluctuation exists. Government has never shown spending restraint when times have been good. Connecticut is no stranger to financial difficulties resulting from lower sales, corporate, and personal income tax collections. While increasing the state’s dependency on revenue from high income earners may be philosophically pleasing to some, it is a structural flaw that guarantees repeats of our current crisis. At the very least, if the lowering of marginal tax rates is not politically possible, stipulations should be put in place that mandate a reasonable level for a “rainy day” fund, and early pay-downs of Connecticut’s nation-leading highest-per-capita indebtedness.