Connecticut’s State Taxes Under Scrutiny for Fairness
Connecticut is set to conduct a comprehensive study on the fairness of its state taxes, delving deeper than previous assessments. While the initial studies found that low and middle-income earners bear a disproportionate burden compared to the wealthy, the new study will also examine tax impacts on the richest households in the state. The Department of Revenue Services will also report on tax burdens for singles, couples, and families with children.
The study, which began this week, is expected to be completed by December 15 and submitted to the General Assembly’s Finance, Revenue, and Bonding Committee. Connecticut Voices for Children, a policy group advocating for tax reform, praised the legislature for their commitment to conducting one of the most rigorous tax incidence reports in the country.
Connecticut’s state government relies on income tax as a progressive source of revenue, with tax rates increasing as income levels rise. However, property taxes, which are levied by cities and towns, are regressive, charging taxpayers at a flat rate regardless of their income or wealth. Property taxes generate roughly double the revenue of the income tax each year, according to the Connecticut Conference of Municipalities.
To assess the overall burden of the state and municipal tax systems, an incidence analysis is performed. The analysis looks at which groups pay taxes and how the burden is shifted. For example, renters indirectly pay their landlords’ property taxes, while gasoline distributors pass on fuel tax costs to service stations, which ultimately affects motorists.
Despite a commitment made over a decade ago to conduct regular tax assessments, officials had shelved the issue after the first tax incidence analysis in 2014 revealed that the poorest households were paying three times the share of their income in taxes compared to the wealthiest. Subsequent studies were postponed multiple times until the most recent study in 2022 confirmed that the problem persisted.
The latest study revealed that filers earning less than $44,758 in 2019 effectively lost nearly 26% of their earnings to taxes, almost four times the rate paid by the wealthiest families. Those earning between $44,758 and $74,688 paid three times more in taxes than those at the top.
In an attempt to address tax inequality, Governor Ned Lamont and the General Assembly approved the first state income tax cut since the mid-1990s earlier this year. The tax cut and other relief measures are expected to provide approximately $500 million in annual savings to low and middle-income households. However, critics argue that Connecticut’s tax system is still imbalanced, especially considering the state’s high cost of living.
To understand the scope of the tax burden more comprehensively, the new study will include an analysis of Connecticut’s tax gap, which refers to the difference between the taxes owed and the amount actually collected. The Department of Revenue Services has until July 2025 to develop a plan to close this gap.
In 2022, Governor Lamont proposed selling the state’s outstanding tax debt to private collection agencies. However, the idea was met with resistance from both parties in the finance committee. Critics of privatized collections argue that it disproportionately affects households at risk of economic hardship and that more frequent audits of wealthy households would be a more effective approach to improve collections.
Connecticut’s ongoing efforts to evaluate the fairness of its tax system reflect the state’s commitment to addressing inequalities. By conducting regular tax incidence analyses and exploring solutions to close the tax gap, Connecticut aims to create a more equitable tax system that benefits all residents.
