CT News Junkie

A Connecticut news site that understands the usual media offerings just…aren’t…enough.

More Than $7B A Year In Tax Exemptions, Expenditures, & Credits

by | Jan 7, 2014 6:30am () Comments | Commenting has expired | Share
Posted to: The Economy, Equality, State Budget, Taxes, State Capitol

istockphoto Every other year, the Office of Fiscal Analysis compiles a list of tax exemptions, expenditures, deductions, or credits that result in less tax revenue to the state. The 218-page report is given to state lawmakers. 

In OFA’s most recent report, it says that for a variety of reasons the state decides not to collect more than $7 billion a year in taxes from its residents and businesses.

Some are small, such as a tax exemption on dues paid to lawn bowling clubs. That exemption costs the state about $400,000 a year in revenue. The exemption benefits fewer than 300 people. It was implemented as part of the tax package passed by the legislature in 1999.

Then there are some of the bigger items, like the property tax credit. The credit applies to single filers with incomes below $146,500 and married filers with combined incomes below $190,500. The $300 property tax credit benefits about 896,000 taxpayers and it will cost the state $213.1 million in 2014 and $214.3 million in 2015.

Before 2011, the credit applied to $500 in property taxes, but Gov. Dannel P. Malloy tired to eliminate it completely. On his 100th day in office, Malloy backed off that proposal and reduced the tax credit to $300.

Another 200,000 Connecticut residents benefit from the Earned Income Tax Credit. The incentive for working people who make too little money to pay income taxes will cost the state about $104.5 million in 2014 and $120.7 million in 2015. It was approved by the legislature in 2011 and advocates say it will help begin to lift these individuals out of poverty when combined with the federal Earned Income Tax Credit. Advocates also argue that these working poor pay a higher percentage of their wages on other taxes such as sales and gas taxes.

Fewer than 150 people will take advantage of the angel investor tax credit, according to the report. The credit is available to taxpayers who invest in start-up, technology-based businesses in Connecticut. Each credit equals 25 percent of the cash investment, up to a maximum of $250,000 in total credits for any single investor. It will cost the state $6 million in 2014 and $3 million in 2015. The tax credit was established in 2010 and expanded in 2011 as part of the special session on jobs.

The job expansion tax credit, also created during the 2011 special session on jobs, will benefit fewer than 300 people. The tax credit is for businesses that create new jobs and hire certain Connecticut residents to fill them. The credit is $500 per month, per new employee, or $900 per month if the employee meets certain criteria. The job expansion tax credit will cost the state $12 million over the next few years.

There also are various products or services for which that state exempts sales tax. For example, sales taxes are not levied on prescription drugs and certain medical devices.

Connecticut implemented its sales tax in 1947.

“Since then, the tax has evolved into a complex structure with a lengthy list of taxable goods and services, and an even lengthier list of items that are exempt,” according to the report.

The report estimates that there are approximately 1.5 million people benefiting from the sales tax exemption on prescription drugs. The measure costs the state about $320 million a year, according to the report.

Sen. Minority Leader John McKinney, who is running for governor, said he doesn’t like how some of the items in the report are defined. He said it assumes that government should be collecting $7 billion in tax revenue each year because it assumes that items that are not taxed are an expenditure by state government.

He said when people purchase food or buy prescription drugs, that’s not an “expenditure” by the government and it shouldn’t be categorized as such.

He said he would fight to keep the tax exemption in place for food and medication, but he doesn’t oppose giving consideration to getting rid of exemptions that favor one specific business, or that just don’t make sense.

There are fewer than 10 companies, according to the report, that don’t have to pay taxes on the gross earnings they garner by selling gas to a plant with three gas turbines and a total capacity of 775 megawatts used to generate electricity.

McKinney said targeted exemptions that favor one specific company should be eliminated from the tax code.

“I think it’s fair to look at some of these and ask why they got passed,” McKinney said.

In 2011, Malloy and the Democrat-controlled legislature eliminated the sales tax exemption for some products and services such as yoga classes and yarn. In 2012, Malloy issued an executive order to create a task force to further study the state’s tax exemptions and expenditures, but not much has happened since.

The task force submitted a final report to the governor on Sept. 27, 2012. The suggestions made by the task force included having the Department of Economic and Community Development administer all major tax credits available to business. It also suggested sunsetting no use and low use tax credits, and consolidating related tax credits.

Tags: , , , , , ,

Share this story with others.

Share | |


(5) Archived Comments

posted by: Just another CT resident | January 7, 2014  10:05am

Sorry Christine but your bias is showing. These exemptions do not “cost the state” a dime. The only “cost” is to the people who pay taxes, you, me and all the other CT residents less.

Likewise this OFA report shows its bias when referring to these exemptions and credits and “tax expenditures.” These are not “expenditures” in any sense of the word. The report’s authors believe these exemptions and tax credits some how cheat the state out of monies it is otherwise rightly due.

As you point out, many of these exemptions and tax credits are either viewed as “good public policy” or try to promote economic activity by individual taxpayers, investors and corporations. While I agree that some of these exemptions are a little unusual, that’s what happens when our legislature passes tax laws (aka “sausage making”).

posted by: dano860 | January 7, 2014  10:41am

There obviously needs to be a better balance of what is taxed Vs the exemptions but it isn’t a politicians place to determine this. Get accounting, banking and business type people to work on this. The politicians will say anything to get votes, they will promise anything to get votes and they have no clue as to how they will fulfill them. We can’t rely on death taxes or bubbles of amnesty tax payments to fund the government.
If taxes were more equitable across the board maybe we wouldn’t need to pay off businesses to come or stay here. Maybe we would look good to the employees that would want to move here. Maybe we would even want to stay here and not dread every legislative session and the outcome of their deal making.
Most of us have forgotten that the sales tax was intended to be temporary. When Lowell W., threw the gas on the fire, income tax, it was to be temporary also. We do forget these things…fast. That’s what the politicians hope for.

posted by: Christine Stuart | January 7, 2014  10:58am

Christine Stuart

Just Another CT Resident,
What bias? I have John McKinney talking exactly about what you’re talking about. The report was compiled by the nonpartisan Office of Fiscal Analysis. If anything I don’t have the Democratic point of view cause I couldn’t find one who had read it and was willing to comment. They’re still on vacation and not focused on fiscal matters.

posted by: ConnVoter | January 7, 2014  11:15am

This comment—“In OFA’s most recent report, it says that for a variety of reasons the state decides not to collect more than $7 billion a year in taxes from its residents and businesses.”—is misleading.  If the OFA even tried to collect this money, the total it would receive is far less than $7 billion because everyone who was on the hook for that would beat feet.  Pronto.

The only way for everyone to know the true cost of their government is to eliminate all of these exemptions and drive the overall flat rates as low as possible.  That’s it.  The State should be about minimizing and paying its bills, not about choosing exemptions here or there.

posted by: BrianO | January 7, 2014  1:27pm

Great reporting.

$7 billion plus $21 billion (the budget) is the financial power of the State. The larger issue is whether this financial power is moving in the same direction or whether it represents a fractured and unruly representation of many squeaky wheels getting oiled.

Social Networks We Use

Connecticut Network


Our Partners

Sponsored Messages