VOICES: Katie Kenney on the Grocery Tax

Here is a reminder for the folks in Hartford: Process matters. Who you put in the room matters. If you seek economic recommendations from a commission made up almost entirely of rich CEOs, with no representation from unions or advocates for the poor – in this case, the Commission on Fiscal Stability and Economic Growth, which Governor Lamont inherited from Dan Malloy – you will get terrible recommendations, like the one that surfaced last week for putting a sales tax on groceries.  

While Lamont has now distanced himself from this proposal, as a Democrat, I was ashamed to have the Republican House Minority leader condemning this terrible idea, while the Democratic leadership scolded me to “take a deep breath.”

Okay, I’ve taken a deep breath. I have considered the data on income and wealth inequality and the effects of different forms of taxation, both in Connecticut and nationwide. I’m now prepared to say it’s not just a terrible idea, it’s a terrible, horrible, no good, very bad idea.  

First, the inequality. For decades, Connecticut has been among the two or three most unequal states. Currently, using a measure that compares the income of the richest 5% to the poorest 20%, we’re the third most unequal, behind New York and California. Our richest 5% is the richest in the country, with an average income fora family of 4 of $444,303.  Between 1979 and 2013, the income of the richest 1% of Connecticut residents grew by 291%while the income of the bottom 20% grew by only 15%.  Locally, Avon has a median income of $125,536,while Hartford, just over the mountain, has a median income of $33,841 and a poverty rate of 30.5%.

Second, what role do taxes play in ameliorating or exacerbating this inequality?  As Democrats, we are not supposed to support a tax system that makes the rich richer and the poor poorer, but that’s exactly what we have in Connecticut. Our system of state and local taxation is regressive, meaning that the poor actually pay a higher proportion of their income in these taxes than the rich, exacerbating inequality. For all state and local taxes (sales and excise, property, and state income taxes combined), those in the lowest income group (bottom 20%) pay 11.5% of their income in taxes, while those in the highest income group (top 1%) pay only 8.1%.  

The numbers only get worse when we focus on the sales tax, which the Commission recommended extending to groceries.  Nationally, according to the Institute on Taxation and Economic Policy (ITEP), “poor families pay almost 8 times more as a share of their incomes in these taxes than the best-off families, and middle-income families pay more than five times the rate of the wealthy.”  This pattern plays out in Connecticut, where the lowest 20% of households pay on average 6.8% of their income on sales tax,compared to 0.8% for the top 1%, or 8.5 times more.  

While sales taxes always take a larger share of income from lower- and middle-income households than rich households, because spending as a share of income falls as income rises,this is particularly true when we tax the necessities of life, like groceries.  In economist talk, the demand for food is inelastic, meaning people can’t choose not to buy it if the price increases—or they can’t make that choice without undue suffering.  That’s why food is currently exempt from sales tax.  (And I would add that, in Connecticut, we used to exempt low-cost clothing as well, recognizing such clothing as a necessity, but that exemption has already been removed, making the poor worse off.)

Which states do better than Connecticut at using their tax system to create more equality?  It turns out all our immediate neighbors do better than we do.  According to ITEP’s Tax Inequality Index, Massachusetts, Rhode Island, New York, New Jersey,Vermont, and Maine (and 15 states in the rest of the country) have less regressive tax systems than Connecticut’s. (Only “Live Free or Die” New Hampshire is worse.)  There are five states – California, Delaware,Minnesota, New Jersey, and Vermont, plus the District of Columbia – whose tax structure actually reduces inequality instead of exacerbating it.

Clearly, Connecticut needs revenue.  Although economic improvements over the last year have helped, there is still not enough revenue to fund our pension obligations or needed improvements to our infrastructure, schools, and social services.  But we can increase revenue without exacerbating inequality.  The state took a step in this direction in 2015, raising the top income tax rate for individuals earning over $500,000 or couples earning over $1,000,000 to 6.99%.  But this rate is still well below the top rates of 8.85% in New York and 8.95% in the District of Columbia.

If the state must raise more revenue from sales tax, the Center for Budget and Policy Priorities suggests ways this can be done without making the system more regressive: broaden the sales tax base to include more services that high-income families consume, such as investment counseling or country club dues.  The state already taxes luxury goods, including cars costing over $50,000, jewelry over $5,000, and clothing over $1,000 at a higher rate (7%) than other goods (6.35%).  The luxury tax rate could be increased and its base broadened.

Wouldn’t such tax increases be unpopular?  Well, that really depends who you ask.  Just this week, Politico reported on a national poll conducted with Morning Consult finding that 76 percent of registered voters think the rich should pay more in taxes.  A Fox News survey found a similar 70 percent favored raising taxes on those earning over $10 million, including 54% of Republicans.  Americans’ views on state and local taxes follow a similar pattern. In fact, a national survey conducted by the website Wallethub found Americans favored progressivity of state tax rates, starting at 2.5% for households earning $5,000 and increasing to 16.36% for households making $2.5 million or more (far higher than the highest marginal rate in any state).  Respondents thought state and local tax systems were fair when higher-income households paid a greater percentage of their income than lower-income households. Yet that is exactly the opposite of how the tax burden is currently allocated in Connecticut.

I’m pleased that Lamont appears to be rejecting this proposal to increase the tax burden on the state’s poorest residents.  Let us hope that before he seeks more advice from the Commission, he appoints members who are more representative of the people who elected him.

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Katie Kenney is a member of the Canton DTC and holds a PhD in Public and International Affairs from Princeton, 2002

For more information on this topic:

“Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.” Institute on Taxation and Economic Policy, October 2018.

“How State Tax Policies Can Stop Increasing Inequality and Start Reducing It.” Elizabeth McNichol. Center on Budget and Policy Priorities. 2016.

“Connecticut Tax Incidence.” Connecticut Department of Revenue Services.  2014.

“How much do the poor really pay in taxes?  More than you think.” National Public Radio.  June 2017.

“What on Earth is Wrong with Connecticut? Conservatives Say the State Has a Tax Problem.  Liberals Say it Has an Inequality Problem.  What it Really Has Is a City Problem.” Derek Thompson. The Atlantic.    

“Connecticut Has More Concentrated Poverty (and Wealth) than Most Metros.”  Trendct.org.  May 2015.

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