As Newtown struggled through its 2011 budget process, Board of Finance Vice Chair Joe Kearney was also watching closely as Governor Dannel P. Malloy rolled out a retroactive personal income tax increase in an effort to close an anticipated shortfall in state revenue projections.
At the time, Newtown’s Senator and State Minority Leader John McKinney decried the measure, calling it a massive new financial burden on the state’s middle class coming at a time when taxpayers could least afford it.
Two years later, as Newtown moves tentatively into its next round of budget deliberations with the unknown costs stemming from the 12/14 tragedy leaving town officials mostly in the dark about incident-related revenue needs, Mr Kearney decided to crunch some numbers to see exactly how much of a burden Gov Malloy’s retroactive tax increase exacted on Newtown’s taxpayers.
According to his documentation, that single state tax mandate cost the average Newtowner an additional $1,027, generating nearly $12 million more for state coffers. That unanticipated tax burden, Mr Kearney fears, will continue to weigh on local residents as the town starts formulating its spending plan for the coming fiscal year.
The Board of Education is requesting a $72,845,304 spending package for 2013-14, representing a 6.26 percent increase over the current year, while the Board of Selectmen approved requesting a municipal budget totaling $38,515,199 — a 1.9 percent increase over the current year.
Finance Director Robert Tait said if the current requests are approved as proposed it would generate a 5.4 percent local tax increase. But that has no bearing on how much more the state will need to close its budget gap in the coming two years.
“That $12 million Newtown taxpayers sent to Hartford in 2011 was expected to help close a $700 million state shortfall,” Mr Kearney told The Bee ahead of his board’s February 21 public hearing on the proposed budget. “But now were looking at over a billion-dollar deficit for each of the next two years. I don’t know where that money is going to come from.”
A Dramatic Picture
Mr Kearney believes his summary paints a pretty dramatic picture of the reality of the effect on the retroactive tax increase to the average Newton tax filer, and what the town as a whole sent to Hartford in 2011 – $11,970,179 according to data he received from the state’s Department of Revenue Services.
“To give you an idea of the size of the increase, it exceeds the total of every tax increase enacted in this town for property taxes for the past six years and over ten percent of our entire budget last year,” he said. “Looking at it another way, Newtown paid almost 25 percent more in taxes between 2010 and 2011, and 24 percent increase in the average return.”
He said that increase was almost entirely the result of increased taxation per return and not a result of population increase since only one percent more returns were filed by Newtowners in 2011. After that retroactive tax increase was announced, Mr Kearney began predicting how that hit would affect local taxpayers both in total and by individual.
Over a five-year period, the finance official added said, that $12 million would have covered $60 million of the $69 million capital budget without bonding a single dollar.
“Instead, we regularly fight over $200,000 to $1 million every year at budget time,” he said. “I am completely floored by the fact that it fixed nothing considering that we are looking at annual deficits of $1 billion per year after this recent tax increase.”
Mr Kearney observed that the state tax increase may have spurred an exodus, at least in Greenwich, which shows a decline of more than $40 million in taxes paid. His data from the DRS indicates Greenwich, among the state’s most wealthy communities, filed 300 fewer tax returns in 2011 and paid $40 million less in income tax to the state than in 2010.
“That could certainly be attributed to high paid individual filers earning less,” he observed, “or maybe its because those taxpayers moved out of Connecticut, or opted to reside for more than six months and one day in a second home outside Connecticut.”
Mr Kearney said in the latter case, those taxpayers would be responsible to the state in which their second home is located, not Connecticut.
He also noted that the total of $728 million more taxes collected by the state in 2011 than 2010 in personal income taxes does not include the additional amounts collected from the other taxes imposed (sales tax, etc).
A spreadsheet supplied by the finance official dating back to 2005 illustrates the following points:
*Between 2005 and 2010, the number of tax returns generated by Newtown residents increased from 10,423 to 11,055. Only 114 more Newtown tax returns were filed in 2011.
*In 2005 Newtown generated $44,725,564 in state income tax, which fluctuated from year to year.
*In 2010, local taxpayers generated $48,549,790, which jumped to $60,519,969 following the 2011 retroactive tax increase.
*The average state income tax paid per return in 2005 was $4,291, increasing to $4,392 in 2010.
*In 2011 that average state income tax burden increased to $5,419.
“There are so many questions that need to be asked of the governor that haven’t yet been asked by the media or even the minority party although it has been close to two years since the ‘fix.’ I hope that changes soon,” Mr Kearney said.