This week, the Institute on Taxation and Economic Policy (ITEP), in partnership with state groups in forty-one states, released the 3rd edition of “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States.”  The report found that, by an overwhelming margin, most states tax their middle- and low-income families far more heavily than the wealthy.  The response has been overwhelming.

In Michigan, The Detroit Free Press hit the nail on the head: “There’s nothing even remotely fair about the state’s heaviest tax burden falling on its least wealthy earners.  It’s also horrible public policy, given the hard hit that middle and lower incomes are taking in the state’s brutal economic shift.  And it helps explain why the state is having trouble keeping up with funding needs for its most vital services.  The study provides important context for the debate about how to fix Michigan’s finances and shows how far the state really has to go before any cries of ‘unfairness’ to wealthy earners can be taken seriously.”

In addition, the Governor’s office in Michigan responded by reiterating Gov. Granholm’s support for a graduated income tax.  Currently, Michigan is among a minority of states levying a flat rate income tax.

Media in Virginia also explained the study’s importance.  The Augusta Free Press noted: “If you believe the partisan rhetoric, it’s the wealthy who bear the tax burden, and who are deserving of tax breaks to get the economy moving.  A new report by the Institute on Taxation and Economic Policy and the Virginia Organizing Project puts the rhetoric in a new light.”

In reference to Tennessee’s rank among the “Terrible Ten” most regressive state tax systems in the nation, The Commercial Appeal ran the headline: “A Terrible Decision.”  The “terrible decision” to which the Appeal is referring is the choice by Tennessee policymakers to forgo enacting a broad-based income tax by instead “[paying] the state’s bills by imposing the country’s largest combination of state and local sales taxes and maintaining the sales tax on food.”

In Texas, The Dallas Morning News ran with the story as well, explaining that “Texas’ low-income residents bear heavier tax burdens than their counterparts in all but four other states.”  The Morning News article goes on to explain the study’s finding that “the media and elected officials often refer to states such as Texas as “low-tax” states without considering who benefits the most within those states.”  Quoting the ITEP study, the Morning News then points out that “No-income-tax states like Washington, Texas and Florida do, in fact, have average to low taxes overall.  Can they also be considered low-tax states for poor families?  Far from it.”

Talk of the study has quickly spread everywhere from Florida to Nevada, and from Maryland to Montana.  Over the coming months, policymakers will need to keep the findings of Who Pays? in mind if they are to fill their states’ budget gaps with responsible and fair revenue solutions.

When your state is more than $8 billion in the red over the next two years and has gone more than a month into the current fiscal year without enacting a budget, it’s hard to see how political intransigence gets the bills paid.  Just ask Connecticut Governor Jodi Rell.  After months of opposing needed tax increases, she has begun meeting with Senate President Donald Williams and House Speaker Christopher Donovan to try to craft a plan to bring revenues and expenditures into balance.  These discussions are private and have excluded members of her own party.

The meetings come after the Governor finally capitulated at the end of July and put forward a revised budget proposal that included some tax increases, including a 10 percent surcharge on the corporate income tax over the next 2 years. 

Still, the Governor’s tax proposals come up short – both in terms of adequacy and equity – when compared to those offered by the General Assembly.  The Assembly’s plan would reportedly generate $1.8 billion over the next two years, with two-thirds of that amount arising from increases in the state’s income tax for families with incomes in excess of $500,000.

The consequences of relying more heavily on spending cuts than on tax increases were well documented in a letter several elected officials, including members of the state’s Congressional delegation, sent to the Governor this week.  It points out that, under the Governor’s recommended budget, the entire staff of the Office of the Child Advocate would be eliminated, leaving the state without an independent entity to ensure the safety of children in the state’s care.

For more on the Connecticut’s ongoing budget debate, see Connecticut Voices for Children’s web site.

In the wake of the worst fiscal crisis in decades, several states -- most notably, New York and Hawaii -- have recently adopted income tax increases targeted at upper-income individuals and families. As the Center on Budget and Policy Priorities has documented, they may well be joined by several other states in the coming months as more lawmakers realize that this is the most responsible way to address budget shortfalls.

Critics of progressive income tax increases like to suggest that such changes will only spur the wealthy to pack up and head to more tax-friendly climes like, say, Wyoming or South Dakota. Yet, as ITEP observed earlier this week, at least three of the states that turned to income tax increases during the last fiscal crisis (New York, New Jersey, and Connecticut) saw an upturn in the number of affluent taxpayers over the ten year period from 1997 to 2006. Guess it's hard to find the equivalent of Per Se or Le Bernardin in Sioux Falls!

Few would envy the position most state lawmakers now find themselves in. Nearly every state is required to balance its budget each year and the vast majority of states face substantial budget deficits in the coming years. Those lawmakers will have to support either cuts in essential public services or increases in politically unpopular taxes -- and do so in the midst of a deepening recession.

Under these circumstances, the best way to eliminate state budget deficits is through tax increases on upper-income individuals and families, as such changes would reduce consumer demand the least. Three states in the northeast -- New York, Connecticut, and Delaware -- seem ready to do just that.

In the Empire State, Governor David Paterson and members of the legislative leadership this week reached agreement on a plan to close a $17.7 billion budget gap. The centerpiece of the plan is the addition of two new tax rates. A rate of 7.85 percent would apply to income in excess of $300,000 and a rate of 8.97 percent would apply to income above $500,000. While those changes would only be temporary in nature (lasting only through 2011) they are expected to bring in about $4 billion per year in revenue.

In the Nutmeg State, budget deficits are projected to total $8.7 billion over the next two years. In response, the Assembly's Finance Committee approved legislation that, among other changes, would add four new income tax brackets, with rates ranging from 6 percent to 7.95 percent, all affecting married Connecticuters with incomes over $250,000 annually (and single taxpayers with incomes above $132,500).

Finally, in the First State, Governor Jack Merkell has put forward a broad-ranging budget plan that would take the constructive step of raising Delaware's top income tax rate from 5.95 percent to 6.95 percent, the first income tax increase since 1974. Even though it would impose pay and benefit cuts on state employees and rely more heavily on gaming and excise tax revenue, this budget plan is a step forward on progressivity.

Despite their obvious unfairness, tax amnesties are a tool frequently used by states during tough budgetary times. By waiving late fees and sometimes reducing the interest rate charged on overdue taxes, state policymakers can provide their state with a quick band-aid fix without having to make the much harder choice of raising taxes or cutting valued services. But penalizing similar taxpayers at different rates dependent only upon whether they decide to pay up during an amnesty period is plainly unfair. The problems associated with amnesties become even worse, however, as soon as a state establishes a habit of repeatedly offering amnesties during tough economic times.

With the possibility of another amnesty always on the horizon, delinquent taxpayers will think twice before settling their debts with the state during normal times, and at normal penalty rates. Creating multiple sets of penalties (one for normal times, and one, lower penalty when budgets shortfalls are projected) therefore reduces fairness by penalizing similar taxpayers differently based only on the timing of their payment, and can also reduce the effectiveness of enforcement efforts and the tax system broadly. These effects can continue long after the most recent amnesty period ends. (Note that this is very similar to the argument against allowing corporations to "repatriate" their profits to the U.S. at a lower rate, a proposal which was recently rejected at the federal level).

Despite the obvious problems, Maryland and New Mexico are both considering legislation to once again provide temporary tax amnesty programs some time in the coming months. New Mexico last provided an amnesty less than a decade ago, while Maryland's last amnesty came in 2001. After that 2001 amnesty, the Maryland comptroller's office noted that "repeated use of amnesties is likely to create cynicism among law-abiding taxpayers, and lessen the need for voluntary compliance with state tax laws, which is vital for our system of taxation". Should another amnesty be offered less than a decade after the 2001 amnesty, growth in taxpayer cynicism seems unavoidable, especially in light of the fact that a similar program offered in 1987 in the state was billed as a "once-in-a-lifetime" opportunity for delinquent payers.

Without a doubt, the momentum in favor of such programs is strong. Alabama is already in the mist of an amnesty period (the state last offered an amnesty in 1984). Massachusetts is currently in the process of deciding upon a date for its amnesty program (Massachusetts last provided amnesty in 2003). Connecticut's program is already slated to take effect on May 1st (Connecticut's last amnesty took place in 2002). And Oklahoma just recently closed its most recent amnesty period, just seven years after its 2002 amnesty.

In this environment, it is extremely important for state policymakers to not only oppose more amnesties, but also to convincingly state that another amnesty will not be offered any time in the near future. For states looking to responsibly close their tax gaps, stepping-up enforcement spending is often a route that can produce sizeable returns, and is undoubtedly much more fair than trying to get something for nothing by arbitrarily waiving penalties in an effort to boost voluntary "compliance". For more specific alternatives to the tax amnesty approach, take a look at these recent enforcement recommendations from Oregon's Department of Revenue.

The Center on Budget and Policy Priorities has put out a critical appraisal of the Tax Foundation's latest rankings of states by their relative state and local tax levels. Due to some methodological changes and recently revised data, some states underwent huge shifts in their ranking (changes of 10 to 15 places were not uncommon) which are not explained by the minor shifts in tax policy that may have taken place within the states. They've revised downward their estimates of the overall state and local tax burden by a full percentage point since 2007. They also no longer call 2007 a "25-year high" in state and local tax burdens, now considering the year lower tax than the mid-90s.

If history is any indication, the Tax Foundation's inconsistent methodology and reliance on early projections without hard data will lead to further rankings revisions in the future. The problem is that when state and national media pick up a juicy story along the lines of, "Your taxes are too high," they don't report the numbers as estimates or tentative. They report them as fact and don't report it when figures for previous years are revised. This is problematic because if politicians take the numbers at face-value, they may overreact to the almost certainly flawed numbers that indicate an enormous shift like, "New Jersey edged out New York to become the highest taxed state in 2008" after being ranked 10^th for two previous years.

But because the numbers used to derive this conclusion are so preliminary and based on a shifting methodology, no responsible policy analyst would confidently claim that New Jersey has higher taxes than New York, Connecticut, or other similarly ranked states. The media don't mention the cautionary details that the Tax Foundation includes in its final report and methodology but excludes in its press releases. Its website even contains a sensational headline that glosses over the limitations of their study.

There are also several more fundamental problems with the Tax Foundation's ranking scheme. The Tax Foundation attempts to determine the combined tax impact from all states on a given state's residents. This is different from how most organizations would identify an average tax load, by simply dividing total state and local tax receipts by total income within a state. This is an important distinction because states generally cannot influence tax policy in other states. Also, while the Census Bureau takes two years or more to compile the official data for a given fiscal year, Tax Foundation relies on proxies (such as dividend income to estimate capital gains) to obtain data for a fiscal year that has barely ended. Using such fly-by-night estimates as a basis for ranking states against one another is so unreliable as to provide almost meaningless numbers.

Of course, the most fundamental criticism of the Tax Foundation report is that it lumps all of a state's residents, from the very poorest to the wealthiest, together in one group for purposes of measuring tax levels. As an excellent Birmingham News editorial reminds us, calling Alabama a "low tax" state conceals the harsh reality that it is among the highest-tax states in the nation in its effect on low-income families. As the editorial points out, "[Our tax fairness ranking] is the ranking that most needs to change. "

Earlier this week, the Institute on Taxation and Economic Policy (ITEP) released a brief report using IRS data and revealing that the most unequal states in the country also happen to be states that lack the type of progressive tax provisions that could reduce this inequality and raise badly needed revenue. The most unequal states either don't have a personal income tax or have one in need of improvement. Consequently, these states are left with tax systems that, on the whole, are unsustainable, inadequate, and unfair over the long-run.

The IRS data show that, in 2006, ten states -- Wyoming, New York, Nevada, Connecticut, Florida, the District of Columbia, California, Massachusetts, Texas, and Illinois -- have greater concentrations of reported income among their very wealthiest residents than the country as a whole. Yet, the tax systems in these states generally ignore that very important reality. Of those ten states, four lack a broad-based personal income tax and three either impose a single, flat rate personal income tax or have a rate structure that all but functions in that manner. Three do use a graduated rate structure, but of these, two have cut income taxes for their most affluent residents substantially over the past two decades.

Given this mismatch, it should not be too surprising that over half of these states face severe or chronic budget shortfalls. After all, the lack of an income tax, the lack of a graduated rate structure, or moves to make the income tax less progressive all mean that a state's revenue system will not completely reflect the concentration of income among the very wealthy and therefore will not yield as much revenue.

Case in point: New York. As the Fiscal Policy Institute observes, over the last 30 years, the state has reduced its top income tax rate by more than 50 percent. Most recently, in 2005, it allowed to lapse a temporary top rate of 7 percent on taxpayers with incomes above $500,000 per year. Today, the state must confront a budget deficit of more than $6 billion for the coming year and more than $20 billion over the next three. New York residents seem to understand the disconnect between the enormous disparities of wealth in their state -- where the richest 1 percent of taxpayers account for 28.7 percent of reported income -- and the state's fiscal woes. A poll released this week shows that nearly 4 out of 5 people surveyed support increasing the state's income tax for millionaires. Hopefully, Governor David Paterson is listening. As it stands, he'd rather cap property taxes than ensure that millionaires pay taxes in accordance with their inordinate share of New York's economic resources.

The Connecticut House and Senate each approved a bill early Thursday morning that adds to the state's existing $150 million deficit by cancelling a scheduled increase in the state's tax on wholesale earnings from gasoline sales. Governor Rell is expected to sign the measure. The bill prevents what would have been a 0.5% increase in the petroleum wholesale earnings tax, which industry lobbyists are claiming would have increased prices at the pump by about 5 cents.

Even if the industry's 5 cent figure is taken at face value, few observers are seriously suggesting that this bill will do anything to improve the financial situation of Connecticut families. During the brief debate that occurred earlier this year over a proposed suspension of the 18.4 cent federal gas tax, that plan was heavily criticized for only providing the average driver with a $30 tax cut. The Connecticut bill would save drivers less than a third of that amount, though it would drive state government millions deeper into debt. Despite the fact that this would only provide a negligible tax cut for the average family, one legislator insisted that it is important to "let our citizens know that we are very concerned about what they're up against" - an unsurprising sentiment given that this is an election year. Pure political motives are the only explanation for why a token gas tax cut is so high on lawmakers' agendas despite the existence of a state government deficit and numerous fiscal problems in many Connecticut counties.

But perhaps even more worrisome than cutting taxes in the face of a deficit is that Connecticut lawmakers have decided to play politics with a very serious issue affecting low-income families. Even if Connecticut legislators don't want to fix their state's regressive tax system, there are still much better options for assisting families hurt by high fuel costs. Instead of providing an across-the-board tax cut that benefits both Connecticut's wealthiest, as well as its poorest families, a targeted low-income gas tax credit of the type enacted in Minnesota could have distributed more gas tax relief to lower-income families at a similar cost. Lawmakers need to admit that the most dramatic impact of the recent economic slowdown has been on lower-income families struggling to make ends meet. Until then, more poorly targeted and gimmicky tax cuts of the kind passed in Connecticut can be expected.

Just in time for tax day, recent reports from California, Connecticut, and North Carolina remind us that the overall distribution of taxes in most states is tilted heavily in favor of the wealthiest. Those least able to pay almost always pay a much larger share of their incomes towards taxes. For instance, California's tax system, despite featuring a highly progressive income tax, requires the poorest fifth of taxpayers to devote 11.7 percent of their incomes to taxes on average. At the same time, the richest one percent of Californians pays just 7.1 percent of their incomes in taxes.

Indeed, Meg Gray Wiehe of the North Carolina Budget and Tax Center could have been writing about almost any state when she recently opined that "when lawmakers consider any changes to North Carolina's current revenue system, they should account for the effect the change will have on low- and moderate-income taxpayers. If fairness is not at the center of every tax policy debate, reform efforts will fall short on achieving long-term adequacy. Focusing on fairness will help the state meet its needs without relying on those with the least to contribute." To read more about how states can make their tax systems more equitable, see ITEP's Guide to Fair State and Local Taxes.

Advocates in Kentucky have long been pushing for the implementation of a state Earned Income Tax Credit (EITC). The EITC is a popular, targeted tax credit that offers assistance to working families. Similar credits have been enacted in 22 states and the District of Columbia. The House Budget Committee passed a bill that would introduce a credit equal to 7.5 percent of the federal EITC, coupled with a broader state estate tax. The bill will now go before the full House.

Policymakers in Connecticut have revived their efforts - stymied by a veto by Governor Jodi Rell - to enact a refundable EITC equal to 20 percent of the federal credit. A bill creating such a credit was approved by the General Assembly's Human Services Committee in late February; see this recent testimony from Connecticut Voices for Children on the measure's potential impact.

The state of Washington, despite lacking a personal income tax, could also be moving towards adopting a version of the EITC. Called the Working Families Credit, it would provide as many as 350,000 Washington residents with a credit amounting to 10 percent of their federal EITC, thus offsetting some of the impact of Washington's highly regressive tax system.

In more low income tax relief news, the Idaho House Revenue and Taxation Committee voted this week to increase the state rebates offered to offset the state's sales tax on groceries. Currently Idaho residents receive a $20 credit as an offset to the sales tax on groceries (more for seniors). The proposal being debated in the House would provide increased and targeted tax relief. For example, the new expanded credit would offer $50 per family member if the family's income is less than $25,000. The value of the rebates would increase each year until the maximum credit of $100 is reached. By 2015 the proposal is expected to cost about $122 million. Read more about options states have to provide targeted tax relief in ITEP's policy brief.

Many states are in a fiscal crunch and the number of states facing budget shortfalls may be growing. This week the Center on Budget and Policy Priorities released a state fiscal update saying that, "At least twenty-five states, including several of the nation's largest, face budget shortfalls in fiscal year 2009." A sluggish economy, bursting housing bubble, and the decline of tax revenues have all had a significant impact on states and their ability to keep budgets balanced.

It's not always clear that states can act as effectively as the federal government to kick start a sluggish economy, but that doesn't stop them from trying. For any legislation to be effective as a stimulus to counteract a recession, it must be "temporary, timely and targeted," as argued by the Center on Budget and Policy Priorities. Some of the stimulus initiatives being proposed on the state level meet these goals better than others. Tax cuts that are not temporary can do more harm to states in the long-run, and provisions that will not have any benefit until after a recession has passed are useless as a stimulus. Most importantly, those tax cuts not targeted towards low- and middle-income people are not likely to result in new spending that immediately spurs the economy, but will go largely towards savings, which takes much longer to have a positive effect.

Stimulus Plans in the States: Connecticut, Iowa, Georgia, and Ohio

In Connecticut, Governor Jodi Rell has asked legislators to reconsider their economic stimulus proposals, arguing that there is no money available to pay for tax cuts. Senate Democrats there proposed increasing the state's property tax credit by $250 and House Republicans proposed offering tax credits to offset medical and energy costs. It's certainly not obvious that an increased property tax credit is well-targeted, since property-owners tend to have higher incomes than everyone else. Depending on how it's implemented, it may not be timely either.

Policymakers in Georgia have proposed legislation to expand the state's personal exemptions temporarily. The legislation is targeted to the degree that it benefits middle-income people, but it doesn't reach those too poor to pay state income taxes. It's also flawed because it's not entirely timely. A lot of people won't benefit until next year.

Some Iowa lawmakers have adopted a completely different approach to providing economic stimulus by proposing a five-year property tax break for Iowans who improve their homes. According to one state senator, the tax break "really rewards all homeowners that have pursued the American dream of owning their own home." But a five-year tax break does not qualify as temporary, at least for the purpose of responding to a recession. It's also hard to believe that it would be targeted to those who need help and will spend the extra money right away, and it's not clear that any home improvements that result will happen quickly enough to qualify this as timely. Another idea being tossed around is a proposal that would expand the state's sales tax holiday to include all items subject to the sales tax. ITEP has long argued that sales tax holidays are not good policy. In this context it's worth noting that they are usually not targeted well at all, since the benefits go to everyone who shops during the sales tax holiday and because people who need help the most are less capable of shifting the timing of their consumption to take advantage of it.

Ohio Governor Ted Strickland isn't proposing increased tax credits. Instead, his plan includes borrowing $1.7 billion in an attempt to stimulate the state's economy and create 80,000 jobs. If approved by voters, more money would be available for transportation, renewable energy technologies, and local infrastructure projects. Borrowing to fund important investments makes sense in some contexts, but as a stimulus it's unclear whether these investments will give a timely boost to the economy to counteract a recession that is occurring now.

People who follow tax issues know that cigarette taxes are regressive, meaning they take a larger percentage of a poor person's income than a wealthy person's income. This is generally true of other consumption taxes such as sales taxes and gasoline taxes because poor people consume a larger percentage of their income than wealthy people, who have the luxury of saving and investing a large percentage of their income.

So cigarette taxes are not the best way to raise revenues from a fairness perspective. But there seem to be situations in which the only tax increases politicians will tolerate are the unfair ones. The state legislature in Delaware wanted revenue to address health and school construction, and just raised $48 million by increasing cigarette taxes from 55 cents to $1.15 a pack. Raising progressive taxes (for example, state income taxes) would be a fairer alternative, but tobacco taxes may be a second-best option when lawmakers refuse to increase other taxes.

New Hampshire just enacted a budget that includes a cigarette tax increase of 28 cents to $1.08 a pack as well as several other regressive fee hikes. While this is unfortunate, the budget also expands children's health insurance by as many as 10,000 kids, which might be hard to do in tax phobic New Hampshire. In Connecticut, the legislature recently approved a budget that raises the cigarette tax 49 cents to $2 per pack in a compromise between Republican Governor Jodi Rell and the Democratic-controlled Assembly. (Rell had earlier suggested increasing income taxes but quickly changed her mind about that.)

Now members of Congress are eyeing an increase in the federal tobacco tax from 39 cents to $1 a pack to fund an expansion of the State Children's Health Insurance Program (SCHIP). Some members of both parties on the Senate Finance Committee have come to a tentative agreement to raise $35 billion over 5 years (less than the $50 billion envisioned in the Senate budget passed several months ago). One can imagine many more progressive ways of raising federal revenues. But if the Senate lacks the leadership and courage to fight for more progressive funding sources, this may be the best chance to expand children's health care this year.

Policymakers in New England saw several budgetary showdowns this week. On Wednesday, members of the Connecticut General Assembly missed an end-of-session deadline for adopting their state's budget for the next two years. One of the most contentious issues in the debates surrounding the spending measure is, not surprisingly, taxes.

Both chambers of the Assembly recently approved bills that would make Connecticut's personal income tax more progressive and that would yield revenue needed to address structural budget shortfalls and to support new initiatives. While there are differences between the bills backed by the two chambers, conflict is much more likely with Governor Jodi Rell, who has already suggested that she would veto any such tax increase.

Interestingly, just four months ago, Rell herself proposed raising the state's top personal income tax rate. She now argues that anticipated budget surpluses are sufficient to meet the state's needs.

In New Hampshire, some substantial differences will likely have to be hammered out within the legislature. The House of Representatives previously passed a budget that relied on an increase in the state's real estate transfer tax and a 45-cent jump in the cigarette excise. The Senate this week was expected to vote on a version of the budget that abandons the transfer tax increase and that would push the cigarette excise up by just 28 cents.

It's the start of the summer driving season, and gas taxes are back in the news again across the nation. Gas taxes have long been the main method used by states to fund their transportation system, but recent high gas prices have made gas taxes a hot political issue. Since most states' gas taxes are fixed dollar values, inflation decreases their value every year, forcing lawmakers to pass new laws raising the gas tax every few years. However, this time around, many states just can't seem to find the political will to do so. Nebraska's governor Heineman is threatening to veto the paltry 1.8 cents per gallon gas tax increase passed by the state's legislature. Minnesota's Governor Pawlenty waited less than twenty-four hours to veto an equally modest five cent per gallon gas tax increase. Even worse, some lawmakers in Connecticut and Minnesota have proposed completely suspending their state's gas taxes, for the summer and for one year respectively. While in the short term these gas tax gimmicks may pay political dividends, in the not-so-long term these states cannot afford to play politics with transportation funding.

Connecticut may be a comparatively small state, but it is now gearing up for what could be a huge debate over tax policy. Already this year, Governor Jodi Rell has proposed increasing the personal income tax rate from 5.0 to 5.5 percent, eliminating the estate tax, repealing the car tax, and capping the growth of local property taxes at 3 percent per year. Senate Democrats have responded with an equally ambitious set of proposals. Legislation approved last week by the Joint Finance, Revenue, and Bonding Committee would create a much more graduated personal income tax rate structure (with a top rate of 6.95 percent for married couples with annual incomes above $250,000) as well as a state Earned Income Tax Credit (EITC) equal to 20 percent of the federal EITC. The Democrats' plan would also double - from $500 to $1000 - the maximum personal income tax credit for property taxes paid. However, some elements of the Democratic plan are less fair - an increase in the cigarette excise tax from $1.51 per pack to $2.00 and the elimination of the sales tax deduction for clothing purchases of less than $50.

A recent analysis of the two sets of income tax proposals by the state's Office of Fiscal Analysis shows married couples with adjusted gross incomes below $200,000 and individuals with gross incomes below $150,000 faring better under the Democratic approach. At the same time, it shows that married couples with incomes above $600,000 per year - and individuals with incomes in excess of $300,000 - would pay substantially higher taxes if the Democratic plan were to become law instead of the Governor's. Connecticut Republicans have been quick to point out that the OFA's analysis leaves out the impact of higher cigarette and sales taxes.

With Connecticut facing a structural budget deficit of half a billion dollars, the stakes in this debate are obviously quite high. Still, it is an encouraging sign to see that both sides in the debate seem committed to using the state's fairest tax - the personal income tax - as the principal means of addressing existing problems and funding new priorities.