OFFICE OF FISCAL ANALYSIS
Legislative Office Building, Room 5200
Hartford, CT 06106 (860) 240-0200
http://www.cga.ct.gov/ofa
sHB-6443
AN ACT CONCERNING REVENUE ITEMS TO IMPLEMENT THE
BIENNIAL BUDGET.
Primary Analyst: MM 5/10/21
Contributing Analyst(s): WL, PM, CW, EW
OFA Fiscal Note
State Impact:
Agency Affected Fund-Effect FY 22 $ FY 23 $
Various Various - See
Below
See Below See Below
Note: Various=Various
Municipal Impact:
Municipalities Effect FY 22 $ FY 23 $
All Municipalities STATE MANDATE
1
-
See Below
See Below See Below
Explanation
The bill makes changes to state tax and revenue policies and
establishes the "Connecticut Equitable Investment Fund." Summary
and detailed table of changes are provided below, along with
additional information and estimates for certain aspects of the bill.
1
State mandate is defined in Sec. 2-32b(2) of the Connecticut General Statutes, "state
mandate" means any state initiated constitutional, statutory or executive action that
requires a local government to establish, expand or modify its activities in such a
way as to necessitate additional expenditures from local revenues. 2021HB-06443-R000638-FN.DOCX Page 2 of 5
2021HB-06443-R000638-FN.DOCX Page 3 of 5
Sections 1 & 2 effectively allow certain employees or contractors to
shift their state income tax burden to employers, beginning in calendar
year 2022. It is unknown to what extent employers would adjust
future compensation levels in response to any such shift. The potential
for employers to adjust future compensation levels would be limited
by collective bargaining agreements and competition within some
industries/job categories. Most state and municipal employees are
compensated according to collective bargaining agreements. To the
extent these employees choose to participate in the program there
would be a cost equal to 5% of wages paid to the state and 2021HB-06443-R000638-FN.DOCX Page 4 of 5
municipalities. For illustrative purposes, the state and local payroll for
unionized employees is approximately $4 billion and $8.6 billion,
respectively. If all these employees participated in the program, there
would be a cost of $200 million and $430 million to the state and
municipalities, respectively.
The bill designates any revenue collected under the Voluntary Wage
Compensation Tax to the newly established Equitable Investment
Fund, with the General Fund absorbing the negative revenue impact of
resulting credits against the state income tax.
2
The preliminary fiscal
note on the bill reflected a $50 million revenue target in FY 23 to the
Equitable Investment Fund due to the new Voluntary Wage
Compensation Tax, which (if achieved) would reduce General Fund
revenue by an approximately equivalent amount.
There is a potential net revenue loss and a potential net revenue
gain to the two funds depending on the behavior of taxpayers who
choose to take part in the program. The potential revenue loss is from
participants whose income is reduced or who forgo an increase in
income as a result of the program.
3
The potential revenue gain is from
participants who are able to keep their income relatively flat or
maintain scheduled increases.
4
Section 6 expands the existing estate tax reduction for decedents
that made qualifying investments during their lifetimes. This could
result in a significant, future state revenue loss to the extent that
participation in the new program reduces tax liabilities under the
estate tax.
2
Under the bill, participating employees and contractors would continue to be
subject to the state income tax but with a credit equal to 95% of the new Voluntary
Wage Compensation Tax paid by their employer.
3
The revenue loss is relatively small per participant, typically less than $100 per tax
filer.
4
The potential revenue gain is a result of the state benefiting from providing a credit
for payroll taxes paid of 95% (rather than 100%) which is worth .0025% of a
participant’s income. For an average tax payer making $75,000 the benefit would be
approximately $188 per tax filer. 2021HB-06443-R000638-FN.DOCX Page 5 of 5
Section 13 establishes the Connecticut Equitable Investment Fund
(CEIF) as a permanent investment fund to receive, invest, and
distribute specified tax revenue, including revenue from new taxes
established in the bill (consumption tax, voluntary wage compensation
tax, digital advertising services tax) as well as revenues potentially
generated via other bills authorizing adult-use cannabis and online
gaming. Under Section 5 of the bill, the state Earned Income Tax
Credit (EITC) is to be funded through the CEIF at a rate equal to 40%
of the federal EITC level.
Costs to implement the tax provisions of the bill are estimated to
total approximately $2.5 million in FY 22 and $1.9 million in FY 23.
This includes $768,722 in FY 22 and $1.4 million in FY 23 in salary and
fringe benefits costs for Revenue Agents, Revenue Examiners, and a
Tax Appellate Officer, as well as one-time costs totaling $1.7 million in
FY 22 and $500,000 in FY 23 for new tax type programming and
information technology costs, after which the only ongoing costs
would be for personnel. The annualized ongoing fiscal impact
identified above would continue into the future subject to inflation.
The Out Years
Outyear impacts identified above.