CT economic outlook for year ahead on tariffs, taxes, Wall Street, prices

Hartford Courant – Friday, September 12, 2025
By Christopher Keating

Connecticut’s businesses and consumers are facing a mixed bag of economic headwinds with relatively low unemployment as they await the long-term impacts of tariffs, spending cuts, and federal tax cuts that will ripple across the state in the coming months.

Compared to the days of constant budget deficits and tax increases from 2008 to 2018, Connecticut’s fiscal condition has stabilized under Gov. Ned Lamont as the tax coffers have been filled with billions of dollars related to rising stock prices on Wall Street in recent years.

Connecticut has become reliant on capital gains taxes that are paid through the state income tax from millionaires and billionaires who have helped generate the funding for the state’s $27 billion annual budget that increased spending by $1 billion over last year.

While affluent investors in Fairfield County have seen gains in their stock portfolios, many average consumers are still struggling from paycheck to paycheck at a time when they say that housing, child care, and electricity are all too expensive.

Chris DiPentima, the chief executive officer of the Connecticut Business and Industry Association, said the state is financially stable but faces challenges in filling about 76,000 available jobs because many workers do not have the skills needed to perform at those particular positions.

“Overall, the Connecticut business community is still optimistic about the state,” DiPentima told The Courant in an interview. “It goes back to the creation of the fiscal guardrails and the state getting some sound fiscal footing. Predictability, stability, and certainty is all businesses ever ask for – just so they can plan accordingly.”

DiPentima and other business leaders remember the days of near-constant deficits as the state struggled for years after the major financial downdraft in 2008 that led to the sudden collapse of the once-powerful Lehman Brothers investment banking firm and a national recession. Today, state business leaders closely follow the actions of President Donald Trump and the volatility on Wall Street.

“There’s now some uncertainty that has come into their lives, clearly at the federal level,” DiPentima said of business leaders. “What’s the impact of tariffs going to be on my business? … We’ve still got some uncertainty about the impacts of tariffs because we don’t know what the different tariff deals will be. We don’t know what the impact of federal funding cuts will have on our state because we haven’t really seen those funding cuts yet. A lot of them have been deferred out a couple of years.”

On the up side, some economists and analysts were pleasantly surprised when the economy grew at an annualized rate of 3% in the second quarter, which was higher than many expected. That came after an anemic first quarter that actually fell by 0.5% in the weakest quarter in three years. Those numbers have led to public political battles over whether the Federal Reserve Board should cut interest rates as Trump sharply criticized Fed chairman Jerome Powell.

When the national jobs report came in worse than expected on August 1, Trump said the numbers were “rigged” and fired the longtime federal employee who oversaw the Bureau of Labor Statistics.

Housing

One of the factors holding back the Connecticut economy is that housing prices are too expensive, whether for a 23-year-old college graduate who is looking for a studio apartment or a young family seeking to purchase their first home in the suburbs. Businesses need to attract workers, and they need affordable housing, officials said.

“Housing is probably our number one limiter to our economic development and economic prosperity,” said David Griggs, president of the Metro Hartford Alliance that serves as the regional chamber of commerce. “We can’t fill those jobs because either we don’t have the skills or we need to import those skills. But we can’t import people if we can’t house people. … This is a business problem. If our businesses can’t bring in the help that they need to be able to survive, how long will it take before they start placing those jobs elsewhere?”

Griggs added, “We need to talk about affordable housing in a different way. When you talk about affordable housing, the knee-jerk reaction goes to Section 8, but it’s not. … With the market that we have today, we are telling our youngest generation that either you’re going to live in our basement or you’re going to have to get out of here. Connecticut has the second-highest percentage of 18- to 26-year-olds still living at home – at 39.6%, according to the U.S. Census. One more number is 20% of 25 to 40-year-olds still live at home.”

Around the region, neighbors have strongly opposed large housing projects, including nearly 70 apartments on three acres at the long-closed Hartford Medical Society building on upscale Scarborough Street in Hartford’s West End. In addition, neighbors have strongly opposed 432 rental units, including single-family homes renting for $5,000 per month, at the former Hartford insurance company in Simsbury, where the massive, 640,000-square-foot office building that once handled 3,000 workers has been knocked down near the Farmington River. The town’s zoning board rejected the proposal as too large, and the New Jersey developer filed a lawsuit in Superior Court.

Sky-high housing prices have helped sellers, but they have made it more difficult for young couples and first-time homebuyers. While rents have remained high, purchase prices have increased in recent years due to relatively few homes on the market with some buyers entering into bidding wars. The bidding has prompted buyers to pay above the asking price for Greenwich mansions to New Haven condominiums to Greater Hartford homes.

“There is demand across the board for single-family, multi-family, and then one bedrooms and studios in downtown Hartford,” Griggs said. “There’s demand for all of it – all of it.”

David Griggs, the chief executive officer of the Metro Hartford Alliance, says Connecticut needs to solve the issue of affordable housing. He is shown with U.S. Sen. Richard Blumenthal, who is concerned about the impact of tariffs on consumers and the state economy.

Hartford hotels

Another key economic generator is the hotel industry, where an increase in business travelers and tourists would have a critical spillover effect on the restaurant industry in downtown Hartford by increasing the “feet on the street” after conventions, business meetings or events at the former XL Center that is now known as PeoplesBank Arena.

Griggs said the hotels and conventions could help at a time when many downtown Hartford office workers remain in their suburban homes on Mondays and Fridays in the post-COVID era of working at home several days a week.

“We’ve got a convention center that can barely operate to what it was built to do because we don’t have the hotel rooms to support it,” Griggs said. “Somehow we need to figure out this chicken and egg, though we’ve already got the chicken sitting over there. We’ve got a convention center that can’t bring in the conventions that would fill 3,000 rooms because we don’t have 3,000 rooms. It could, if we had 3,000 rooms. Imagine if we had a bigger convention once a week and had 2,000 more feet on the street every day, every night, going for lunch and dinners. How much of what we’re missing from that office component could be replaced by visitors?”

Trump tax bill

Both businesses and consumers will be impacted by Trump’s tax bill, which is expected to increase the national debt by more than $3 trillion over 10 years.

One of the biggest victories for tax-cutting Republicans is raising the $10,000 cap per couple on federal deductions for state and local taxes, which is known as the SALT tax. First enacted as a controversial measure in 2017 under Trump, the law in recent years said that homeowners with high property taxes, for example, could only deduct the first $10,000 on their federal taxes. That became a key issue through the years in high-tax states like Connecticut, New York, New Jersey, and beyond. That deduction will now increase to $40,000 per year. thus prompting some taxpayers to now itemize their deductions.

After the sweeping tax changes of 2017 and the increases in the standard deduction, about 90% of all taxpayers took the standard deduction.

Senior citizens will also see tax relief as soon as the 2025 tax year. If both members of a couple are over 65 years old, they will receive an additional standard deduction of $6,000 each for a total of $12,000 per year for the tax years 2025 through 2028.

Overall, married couples filing jointly who meet the age and income guidelines could receive an overall standard deduction of $46,700 per year, which could sharply reduce their federal taxes because they likely would have lower income in their retirement years.

Concerns about tariffs

U.S. Sen. Richard Blumenthal said that consumers are concerned about potentially rising prices on a variety of products over the next year due to tariffs.

“As I go around the state of Connecticut, I find intense worry and apprehension about the effects of tariffs on our economy,” Blumenthal said when asked by The Courant. “I was in a grocery in Hartford, where the owner of the grocery was saying right now they were absorbing the increases in prices of tomatoes from Mexico or bananas from South America. There’s a limit to how long they can absorb those price increases, especially if they’re in the range of 20% or 30%. … They simply can’t do it forever.”

The tariffs have changed on a constant basis as Trump has made announcements regarding various countries before withdrawing the proposal – causing ups and downs in the stock market, depending on the announcement.

“What’s most dangerous from an economic standpoint to small businesses and actually businesses of any size is the unpredictability and uncertainty,” Blumenthal said. “Businesses will tell you they can deal with anything as long as they have some certainty. It’s the changes in regulation and the unpredictability that are the most dangerous because businesses have to plan. They have to know how many employees to hire, how much raw material to buy, how to set their prices. It’s just a really dangerous new world when tariffs rise and fall on the whim of the President and how he is feeling about a country.”

Blumenthal added, “I’m seeing the beginnings of impact here in Connecticut, and my colleagues tell me the same is true around the country. … It might not be apparent right away, but tariffs have impacts on prices.”

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