UConn Report Encourages Reworking Tax Code

Remaking Connecticut’s tax code could go a long way to helping to solve the budget deficit. That’s according to the latest issue of the Connecticut Economy, UConn’s quarterly on economic issues. WNPR’s Harriet Jones reports.

Connecticut’s tax code contains pages of what can be termed tax expenditures. These include not just tax credits for businesses, but also items such as a break on sales tax on clothing up to $50 dollars, no sales tax on motor vehicle fuels, and exemptions for non profits—all instances where the state foregoes revenue. Taken together they may be worth between four and $5 billion annually. Editor of the UConn quarterly, Steven Lanza.

“Every time you introduce these exemptions, exclusions and so forth, you are complicating the tax code and it has lots of unintended consequences. A simpler system which would involve taxing a broader base of goods and activities at a lower rate, generally would introduce fewer distortions into the system and probably be better for growth.”

Lanza says some creativity with the tax code is preferable to the specter of mass layoffs of state workers. He says solving the deficit by streamlining government could in the end cost the state as many as 25 thousand jobs.  But Peter Gioia, Chief Economist at the Connecticut Business and Industry Association says ending tax breaks has its multiplier effect also.

“If you raise taxes or as they say eliminate these tax expenditures, many of which benefit not only businesses, but ordinary working people, with things such as motor fuel and food that aren’t taxed right now, if you do that, you could have a much more negative effect on the economy.”

There’s still plenty of room for discussion. The state’s own forecasts say it’s going to take two years, at a moderate rate of growth to regain the same level of state revenues that Connecticut enjoyed pre-recession.

For WNPR, I'm Harriet Jones.