Tax the rich to help poor and middle-class recover from COVID-19? Connecticut lawmakers hold daylong debate.

Lawmakers clashed Monday over raising taxes on the wealthy, including hiking personal income taxes and imposing a so-called mansion tax on all homes worth more than $430,000.

Proponents at a daylong public hearing said the state needs to raise taxes on the rich because the poor and middle-class have been struggling for the past year with high unemployment during the ongoing coronavirus pandemic. They said that the additional millions of dollars in tax revenues are needed to fund essential services and reduce racial and economic inequality.

Opponents argued that Connecticut has raised taxes before and it hasn’t worked. Gov. Ned Lamont has also resisted calls for further tax hikes.

Here are some highlights from Monday’s hearing:

Taxing the rich could close deficits

The measures discussed Monday call for creating a separate surtax of 5% on capital gains, dividends and taxable interest and increasing the personal income tax rate for individuals who are earning more than $500,000 per year and couples earning more than $1 million per year.

Some lawmakers also want to reduce the Connecticut estate tax exemption to $2 million and eliminate the current cap on payments - leading to higher payments by the wealthy. They would also increase the corporate profits tax rate to 11.5% for companies generating more than $100 million in gross income and increase the long-standing corporate surtax to 20 percent.

Indiana University law school professor David Gamage, who served in the Treasury Department under President Barack Obama, said that raising taxes on the rich would benefit Connecticut by providing enough revenue to close projected budget gaps. While the state has a projected surplus for the current fiscal year that ends on June 30, deficits could reach $1 billion in each of the next two years unless changes are made.

“The states with the highest income tax rates — like California — have actually done the best in recovering from the early stages of this pandemic, and that’s because the wealthiest individuals and families have been doing very well,” said Gamage, who has advised states on tax reform. “It’s the ordinary, Main Street economic activities that have been suffering.”

But Republicans say it hasn’t worked before

But Republicans pushed back strongly against Gamage, saying that tax hikes did not solve the state’s long-running fiscal problems despite several major hikes in 2011 and 2015 by then-Gov. Dannel P. Malloy.

Rep. Joe Polletta, a Watertown Republican who operates a small business, said Connecticut has seen the problems firsthand.

“Those of us who have lived here in Connecticut lived through the downturn in the last 10 years,” Poletta told the professor. “We saw tax after tax. Small business owners — restaurant owners in this pandemic, especially — are seeing how difficult it is to do business here in the state of Connecticut. No offense. We lived it. Expertise is great. But, at times, you’ve got to come here and see exactly what’s going on.”

Rep. David Yaccarino, a North Haven Republican, said that Massachusetts grew out of its deficit 10 years ago, while Connecticut continued to struggle with deficits after tax increases under Malloy. He questioned Gamage over the financial situation in the two states.

“It’s dangerous to reason from anecdote and narrow circumstances and specific details, which can be colored in different ways,” Gamage said. ’'Research is not easy, not straightforward.”

But Yaccarino responded, “Facts are facts. ... Massachusetts looked at their past failures of consistently raising taxes, and saw the results were that it didn’t work. ... I’ll give you one more example. [Greenwich billionaire] Thomas Peterffy was the 31st richest man in the world. I know this because my friend is his accountant. Out of principle, when Governor Malloy was raising the income tax, he left Connecticut. We lost tens of millions dollars a year because of that. So people do leave. We have to look at facts.”

Funds would be shifted to lower-income individuals

The bills being debated Monday had a number of provisions, including providing one-time payments of $500 for those who received unemployment benefits during the pandemic between March 15 and December 31, 2020. In addition, lawmakers are calling for doubling the maximum property tax credit on the state income tax to $400, up from the current $200. Another provision calls for allowing undocumented workers to receive the state earned income tax credit, which is open to those who qualify for the federal credit.

Sen. John Fonfara, a Hartford Democrat who co-chairs the finance committee, said that the legislature needs to look at the full picture - not just the longtime view that raising taxes on the rich would drive them out of the state.

“We never hear about the cost of living in Connecticut driving poor people out of the state,” Fonfara said.

Lamont has resisted raising taxes

But Lamont and his administration have repeatedly said that they want to avoid raising taxes on the rich — or anyone else — at a time when the economy is still fragile.

“Look, we want the wealthy investors in Connecticut, too,” Lamont’s budget director, Melissa McCaw, said recently. “The governor is trying to exude confidence and stability on staying and coming to Connecticut. Tinkering with our taxes and trying to tax our way out of our current challenges in the middle of a public health pandemic, and with a fragile economy, we don’t believe will reap the returns that are necessary for Connecticut’s comeback.”

She added, “This is about the long game. This is about ensuring that our middle class want to be here and that they can thrive here, and so hence he’s focusing on stability for Connecticut.”

Greenwich resident Joseph Melendez testified at Monday’s hearing that he is moving out of state after saying that his property taxes on his home have risen to $41,000 per year, up from $6,000 when he moved here nearly 25 years go.

“I cannot afford to stay here any longer,” said Melendez, an insurance company owner who said he will retire soon. “This state is bankrupt, and anyone saying anything different is not being truthful. ... The whole idea of not paying your fair share, I find insulting.”

But Diane Keefe of Norwalk, a longtime bond investor and member of the Patriotic Millionaires, said, “I can afford to pay the increase in the income tax and most of my peers can as well. I ask you to care about all of Connecticut’s residents.”

Mansion tax debate continues

Two different proposals discussed Monday would increase taxes on real estate. One calls for a new, 2% statewide tax on homes with a market value of more than $1.5 million. A separate proposal on the so-called mansion tax would be a statewide tax of one mill ($1 per every $1,000 of assessed value) on all homes valued at more than $430,000.

Senate Republican leader Kevin Kelly of Stratford said the proposed tax would hit homes far beyond the rich enclaves of Fairfield County.

“In reality, this is a tax on all our communities, and it will hurt middle-class families most of all,” Kelly said. “For example, a town like Stratford would send $1.2 million to Hartford under this new tax, and would only get back $127,000. Stratford is not the land of mansions. It’s a town with a median income of just $38,000. Yet this tax would take over a million dollars from a community that could be used to educate its children, plow roads, or keep residents safe. Instead, it would go to Hartford to bail out other towns and support partisan agendas.”

Christopher Keating can be reached at ckeating@courant.com

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