Pressure Mounts to Tax the Rich in Connecticut

Originally published in The Intercept on May 28, 2021.
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In the wealthiest state in the country, a legislative fight is brewing over whether to tax the elite residents who bring the state its superlative. Connecticut boasts the third-largest center for hedge funds in the world, 14 resident billionaires, and trifecta control for the Democratic Party, including a supermajority in the state Senate and a near supermajority in the House. In April, the state’s Finance and Revenue Committee approved a package with tax cuts for poor and middle-class residents, financed largely with new taxes on households earning more than $500,000 per year. But the General Assembly ends June 9, and Connecticut’s Democratic Gov. Ned Lamont has declared that he will veto any such move. 

“Governor Lamont has been clear for months: Connecticut doesn’t need more taxes, we need more taxpayers,” said spokesperson Max Reiss in a statement to The Intercept.

Connecticut isn’t just the nation’s wealthiest state — it’s also among the most unequal ones, with the top 1 percent out-earning the rest by more than 42 to 1. Affluent towns like Darien and Greenwich stand in stark contrast to the realities of deeply poor cities like Hartford and Bridgeport. (Lamont, a multimillionaire who grew his personal fortune through the telecommunications industry, lives in Greenwich.)

“I think sometimes people think they know more than they know,” said Rodney Wade, a pastor from Waterbury, Connecticut, who has been advocating for the tax increases through a labor, faith, and grassroots coalition known as Recovery for All. “And when you don’t understand the language and the issues, then you believe that you have the answers. At the end of the day it boils down to who has your ear, and what we’ve learned is it’s been hard to get the governor’s ear, compared to his buddies.” 

Connecticut’s state legislature isn’t the only one in the Northeast to recently lean into a progressive revenue campaign, and advocates are hoping that their neighbors’ wins will help them with leverage. Last year, New Jersey became one of the first states to pass a millionaires’ tax, increasing state income taxes on millionaires by nearly 2 percentage points while also creating a new annual rebate for families earning less than $150,000.

This past spring, New York lawmakers also succeeded in passing new legislation to tax the state’s highest earners and corporations, something New York Democratic Gov. Andrew Cuomo had long resisted. All told, the legislation will raise $4.5 billion in new revenue, in part by increasing the personal income tax rate on individuals making over $1 million.

“Every time a state rejects the notion of austerity and leans into raising revenue, it’s more wind in our sails,” said Charles Khan, the organizing director at Strong Economy for All, a labor and community coalition in New York. “So seeing New Jersey do that last year, and seeing [Gov. Phil Murphy], a former Goldman Sachs exec sign it — that really helped.”

Activists and lawmakers in Connecticut are pushing increases on the wealthiest households that would generate about $760 million annually, plus a tax on digital ads that could generate an additional $162 million per year.

Carol Platt Liebau, president of the Connecticut-based conservative think tank Yankee Institute for Public Policy, told The Intercept that the proposed tax increases would “make the state more dependent than ever on volatile investment income” and argued that in the past, when such revenues haven’t materialized, the state turned to less-targeted tax hikes that hit the poor harder. According to Liebau, the newly proposed tax increases “target people who are extremely mobile and often have the option to move their residence to a lower-tax state.” She pointed to an analysis from her think tank showing that Connecticut still hasn’t recovered the number of high-earning households it had before the Great Recession. It “barely” remains the wealthiest state, the think tank warns.

For decades, efforts to raise revenue by taxing a state’s wealthiest residents have been met with arguments similar to Liebau’s. Resistant lawmakers and local business groups warn that taxing the rich too much would drive the wealthy to move away altogether, leaving the state with even less revenue than they started with. The other common refrain is that higher taxation is an issue for the federal government to address, not something that can be tackled on a state-by-state basis. 

Both arguments sound true at first blush: Adjusting federal tax policy would be a major game-changer, while at the same time, the wealthy already avoid the full cost of their tax bills. Earlier this year, a team of researchers from the London School of Economics; the University of California, Berkeley; Carnegie Mellon University; and the IRS put out a new analysis, estimating that the richest 5 percent of Americans hide more than 20 percent of their earnings each year from the federal government. 

But in recent years, a growing number of advocates and researchers have begun to push back on these talking points, homing in especially on the fear that state tax policy significantly drives residential migration patterns. (Climate preference appears to be a much greater factor.) One Cornell University sociologist analyzed tax return data and found that the rich rarely change the state where they live. Just 2.4 percent of millionaires move across state lines each year, and of those, only 1 in 8 were chasing lower taxes — or 0.3 percent of millionaires overall. “So tax flight is not a figment of our imagination, but it is greatly exaggerated,” wrote the researcher, Cristobol Young. “This fraction of moves is too small to matter, especially as New York continues to grow new millionaires faster than any leave.”

Khan, of Strong Economy for All, said his group’s work in New York has also revealed how state-based reforms can impact federal conversations. “When we can pass model-type legislation in blue states, it further moves the constituencies of those House and Senate members to be in favor of taxes,” he said. “So we’ve seen it does help us on the national level.”

Zohran Kwame Mamdani, a New York state assembly member who supported raising taxes, said his legislative colleagues often argued that taxation was a national responsibility and not their fight. His colleague Yuh-Line Niou, who also pushed for tax increases, added, “We heard that since there’s going to be dollars coming from the federal government, we don’t have to raise this money. But what we’ve said over and over is, well, that’s going to be a one-time infusion, and we need funding in perpetuity.”

In February, lawmakers, unions, and community groups from New Jersey, New York, Connecticut, Pennsylvania, Rhode Island, and Massachusetts convened for a “legislative teach-in” to strategize on how to wage the most successful campaigns. More recently, dozens of legislators from those states signed on to a letter calling to end tax breaks for the wealthy and push more progressive state tax systems.

Connecticut advocates with Recovery for All say the proposed tax increases could go a long way toward funding housing, social services, and health care. “The funds could help finance more school counselors, support for paraprofessionals, food availability because some students need meals also at night and on the weekends,” said Jeff Leake, president of the Connecticut Education Association. Callie Heilmann, co-director of the grassroots group Bridgeport Generation Now!, added that the wealth tax could help support an alternative to policing. “We want to fully fund our mobile crisis teams so they can operate 24/7,” she said.

THE TAX INCREASES on the table in Connecticut are more modest than advocates sought even a few months ago. In early 2021, progressive lawmakers introduced legislation in both chambers to generate $4 billion-plus from the state’s wealthiest residents and corporations. Hundreds turned out in March to testify in support.

Sen. John Fonfara, a Democrat from Hartford — the poorest city in Connecticut — and one of the finance committee’s co-chairs, had originally aimed to raise taxes on households earning more than $140,000 annually, but he told The Intercept he couldn’t garner enough support from his colleagues for that. Still, the legislature has “never pushed anything of this magnitude before,” and he credits the Recovery for All coalition for pushing him to think more seriously about progressive taxation.

“I candidly admit I had not spent anywhere near enough time with the 2014 Department of Revenue Services incidence report,” he said, referring to an analysis that revealed the state’s regressive tax structure. “I now consider that my bible in many respects.”

Martin Looney, president pro tempore of the Connecticut Senate, acknowledged that changes to the tax code have thus far been modest and incremental. “I certainly believe we should take every opportunity to keep advocating for making our tax code more progressive, including having a separate capital gains tax,” he told The Intercept. “We’re going to continue to advocate for them in our negotiations with the governor.”

Business groups, Republicans, and Lamont have continued to stick to their arguments that taxing the wealthy more would be detrimental for the nation’s wealthiest state.

Lamont has pointed to the billions of dollars in relief funding for the coronavirus pandemic coming into Connecticut from the federal government as reason to avoid imposing new taxes. “The administration wants us to believe our economic problems just started with Covid,” said Fonfara.

“The discussion is predicated on the belief that Connecticut state government isn’t spending enough money,” said Liebau, of the Yankee Institute for Public Policy. “Our elected officials should be finding better ways to give people their money’s worth, not conjuring up new ways to take more of it.”

Lamont’s opposition strikes some Democrats as particularly out of step, since he was one of the earliest endorsers of President Joe Biden, and Biden, along with Democrats in Congress — who have a much slimmer majority — have made a point of public support for taxing the rich. Lamont’s adamant centrism also stands in strong contrast to the progressive mantle he claimed when he ran for U.S. Senate in 2006, campaigning on ending the Iraq War and investing in public education. He moved rightward just four years later, when he positioned himself as a pragmatic businessperson in his gubernatorial bid.

Advocates in the Recovery for All coalition are still determining how they’ll ramp up pressure over the next two weeks, but they stress that their work will continue beyond the 2021 budget cycle. “There’s never been this type of coalition that has worked together before,” said Joelyn Leon, political director of the Connecticut Employees Union Independent, SEIU Local 511. Last week, the coalition held a mass rally at the state Capitol in support of the proposed tax increases, and earlier this month, they stormed the governor’s residence in Hartford to stage a “die-in” in support of a more equitable budget. They’re also running a series of digital ads to pressure the governor.

“What New Jersey’s done does help us from a lobbying perspective,” said Jennifer Berigan, the legislative and political director at Connecticut AFL-CIO. “What New York and New Jersey in particular [have] done demonstrates what’s possible.”

“Yes, the ideal approach would be a nationwide approach, but in the meantime there’s a lot we can do,” said Mamdani of New York. “This is not a zero-sum game.”

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