State government could raise as much as $180 million annually to combat homelessness or address other social needs by boosting its tax on the sale of high-value houses, according to a recent report from two Washington fiscal think tanks.
And with Connecticut’s top state senator pledging to renew his push for a statewide property tax on expensive homes, Connecticut’s ongoing debate on income and wealth inequality could be expanding next January when lawmakers return to the state Capitol.
“A historically large share of the nation’s wealth is concentrated in the hands of a few, a reality glaring in the housing sector,” wrote analysts for the Center on Budget and Policy Priorities and the Institute on Taxation and Economic Policy, commonly known as ITEP. “High-value homes in many parts of the country have grown even more valuable over the past several years while people with low incomes, especially renters, face ever-growing challenges affording housing.”
While median rents are up nationwide more than 18% over the past two decades, analysts wrote, renters’ incomes have risen just 4%, making it harder to afford food, clothing, transportation and other basic needs.
During the height of the COVID pandemic three years ago, 8.5 million households with low incomes yet lacking household assistance paid more than one-half of their income toward rent, lived in “severely inadequate housing conditions,” or both, analysts wrote, citing data from the U.S. Department of Housing and Urban Development.
After nearly a decade of decreases, homelessness in Connecticut rose 13% in January 2022 compared with the prior year and by another 3% in January 2023, at which point 3,015 people were unhoused, the Connecticut Coalition to End Homelessness reported last August.
And with federal rental assistance supporting just one in four eligible households due to limited funds, states increasingly are exploring “mansion taxes” in the form of progressive conveyance levies as ways to generate revenue to combat homelessness, analysts added.
Connecticut could generate another $92 million annually by levying a 4% conveyance tax on the portion of any housing sales that exceed $1 million, the report states.
The state’s annual tax could climb to $179 million if the 4% rate were imposed on the entire transaction of all sales that exceed $1 million in value.
That would be in addition to the roughly $270 million Connecticut generated this past fiscal year through its current state conveyance tax.
The state currently taxes the first $800,000 of any house transaction at 0.75%. Any portion of a sale that exceeds $800,000 and is less than $2.5 million is taxed at 1.25%, while any portion above $2.5 million is taxed at 2.25%.
But wealthy homeowners can recover any taxes paid at 2.25% in the third year after the purchase. They qualify for reimbursement through a state income tax credit provided they still reside in Connecticut.
Municipalities here also levy a local conveyance tax, with rates ranging from 0.25% to 0.5%
Any CT tax hike proposal likely to draw some strong opposition
But many argue Connecticut already has one of the heaviest state and municipal tax burdens in the nation.
And of the 33 states that impose a real estate conveyance tax, Connecticut is one of just seven that levy a surcharge on the sale of higher value homes.
“Anything that would drive up the cost of buying a home in Connecticut, I suspect … would be met with a resounding ‘no’” by minority Republicans in the state House, said Rep. Holly Cheeseman of East Lyme, ranking House Republican on the tax-writing Finance, Revenue and Bonding Committee.
“CT REALTORS opposes any conveyance taxes on real property whether on sellers or buyers, including the mansion tax” option, said Carl Lantz, president of the group formerly known as the Connecticut Association of Realtors, which has nearly 19,000 members.
Gov. Ned Lamont raised state taxes and fees by about $270 million annually to close a deficit he inherited upon taking office in 2019. But except for a new commercial truck mileage tax that launched last year, he has pushed hard since then to avoid other hikes and approved major tax cuts in 2022 and 2023.
The new report shows that “Connecticut is already a leader in this area — we have instituted a progressive real estate conveyance structure,” said Chris Collibee, Lamont’s budget spokesman. “In the next fiscal year, a portion of those funds will be directed towards new housing development. In addition, under Governor Lamont, we are investing more in workforce and affordable housing — both providing opportunities for home ownership and financing of construction.”
But Connecticut’s programs to combat homelessness and poverty still have great needs, said Carla Miklos, executive director of Operation Hope, a Fairfield-based nonprofit.
“While we appreciate the funding we receive to address homelessness, there is always more needed if we are really going to provide lasting change for people,” Miklos said, adding that many nonprofit social service agencies struggle with understaffing and low wages.
“The work is hard, it requires skill, but the pay falls behind,” Miklos said. “Attention in this area is long overdue.” More rental subsidies and housing that offers higher levels of care also is needed, she said.
“As a state with rampant and nationally-recognized economic inequality, we should be looking at every opportunity to address the gaps that plague the progress of our state,” said Norma Martinez-HoSang, director of Connecticut For All, a progressive statewide coalition of more than 60 labor, faith and other civic organizations. “Services like strong public K-12 schools to educate our future generations, accessible health care to care for our sick, stable infrastructure to keep our state moving and affordable housing to keep us sheltered all require stable revenue sources. Progressive revenue policies like a mansion tax would allow us to capture revenue from our state’s most wealthy residents and ensure that the services we all rely on are properly and sustainably funded.”
While Connecticut features some of the most expensive houses in the nation, it also is home to extremes in income and wealth inequality and one of the country’s more regressive tax systems — meaning most taxes are imposed at a flat rate, regardless of a household’s ability to pay. So while any mansion tax would be controversial, alternatively seeking more revenue from the poor and middle class — even to combat homelessness — likely would create even greater waves at the Capitol.
A January report from ITEP found Connecticut’s state and municipal tax systems, combined, rank behind 29 other states and the District of Columbia in terms of regressivity.
Connecticut’s own tax fairness study last February showed things have gotten worse here over the past decade, and that state and municipal taxes effectively consumed 39.9% of the earnings of Connecticut’s poorest 10% of households in 2020. At the same time, middle-income households lost 11.5% to 13% while the highest-earning 10% effectively paid 7.3%, or less than one-fifth the rate of the poorest.
And while Lamont and legislators often note they adopted the largest state tax cut in Connecticut history in 2023, an analysis from Connecticut Voices for Children, a progressive policy group, found tax fairness is eroding even after those cuts are considered.
The poorest residents still effectively lost 32% of their earnings to state and municipal tax burdens, more than four times the rate of the wealthiest households.
Senate leader to revive mansion property tax bill
But if lawmakers are wary of boosting taxes on housing sales, Senate President Pro Tem Martin M. Looney, D-New Haven, has an alternative.
The lawmaker has twice proposed a statewide property tax, but only on high-value homes. And he says he will try again in 2025.
In 2023, Looney proposed a 1-mill tax on houses with an assessed value exceeding $1.5 million, and a 2-mill tax on those topping $2 million. One mill generates $1 of tax revenue for every $1,000 of assessed property value.
Connecticut Voices for Children has endorsed similar proposals, estimating they could generate $330 million to $660 million annually.
Looney’s 2023 measure, which was raised for a public hearing but never cleared the Finance Committee, would have dedicated its revenues for municipal education grants. But he told The Connecticut Mirror that assigning funds to combat homelessness and to assist with other social programs also makes sense.
“I believe we ought to look at generating more revenue at the state level from high-end properties,” Looney said, noting that Connecticut’s poorest communities generally face much higher local property tax rates than those in affluent Fairfield County suburbs.
And with the legislature’s increased focus in recent years on tax fairness and income inequality, Looney added that he believes support for a “mansion tax” — either through real estate conveyance or statewide property taxes — will continue to build.
“I think people are becoming a little bit more aware of how the [unequal municipal] property tax is not really a suitable or appropriate way to raise money,” he added.
The chief lobbying arm for cities and towns, the Connecticut Conference of Municipalities, didn’t take a position on Looney’s 2023 measure, or a similar one the Senate leader pitched that also failed to win passage in 2021.
But CCM Executive Director Joe DeLong said the conference’s new initiative to assist Connecticut’s at-risk youth population is focused on affordable housing, homelessness and related issues. And its report, expected before the 2025 legislative session starts in January — and possibly as early as October — is likely to examine new options to fund social services programs.
Another municipal lobbying group, though, the Connecticut Council of Small Towns, is very wary of any statewide property tax, said Executive Director Betsy Gara.
“The property tax is already overutilized as a way of funding the delivery of local services,” she said. And if one if launched — even if aimed only at high-value homes — “it would just open the door to conversations of a statewide property tax increase across the board.”
The statewide Realtors’ association also opposed any “mansion” property tax. “In many of our cities and towns, what is labeled a mansion is an average-priced home,” Lantz said.
Staff Writer Ginny Monk contributed to this article.
This story was originally published by the Connecticut Mirror July 3, 2024.