CT face-off unfolding on taxes. Where there’s a fight and who might have to pay more

Hartford Courant – Sunday, April 20, 2025
By Christopher Keating

With key legislative committees issuing recommendations, Gov. Ned Lamont and the legislature are working to set the stage for an eventual compromise on taxes and spending to balance the state budget.

While the state is headed toward another surplus for the current fiscal year that ends on June 30, Lamont and legislators are concerned about the fiscal storm clouds ahead that could lead to cuts by President Donald J. Trump. Depending on the size of the cuts, Connecticut could be forced to dip into the rainy day fund for fiscal emergencies that has been accumulating in recent years and stands at more than $4 billion.

In the coming weeks, Lamont and lawmakers will be grappling over a final compromise as they seek to finalize the two-year, $55 billion budget.

“We’re against any tax increases”

One set of solutions was offered by the legislature’s Tax Equity Caucus, which says lawmakers should increase the capital gains tax by one percentage point on the richest residents to raise a minimum of $171 million per year as higher taxes could raise larger amounts.

In addition, the caucus is pushing hard to create a permanent, refundable child tax credit of $600 per child for the first time in Connecticut history. The way to make this all possible, Democrats say, is by loosening the fiscal guardrails that were created on a bipartisan basis in 2017 and have allowed the state to generate continuous surpluses during Lamont’s tenure.

But Lamont doesn’t want to raise taxes on anyone, and Republicans don’t want any changes in taxes or the guardrails.

After more than a year of complaints from some Democrats, Lamont agreed to a slight change in the guardrails when he unveiled his budget in February in a move that would allow more spending than is permitted under current law. For years, Lamont has blocked attempts by liberal Democrats to raise the state income tax on Connecticut’s wealthiest residents or impose a separate capital gains surcharge that the caucus still advocates.

At the same time, Lamont’s budget team is bracing for cuts at the federal level that would reach Connecticut.

“Despite the unpredictability coming out of Washington, the administration is having ongoing discussions with legislative leadership about a path forward, after we see a final federal budget, and know its impact on Connecticut,” said Rob Blanchard, Lamont’s chief spokesman. “As the governor stated, he is prepared to use his emergency powers, but not yet. Especially in light of recent economic concerns, his preference is increasing the number of taxpayers in our state, rather than increasing taxes.”

Republicans agree with Lamont.

“We’re against any tax increases,” Senate Republican leader Stephen Harding told The Courant in an interview. “We’re one of the highest-burdened tax states in the country. We’ve seen what has occurred when we’ve increased taxes in this building not that long ago — there was an exodus of businesses and residents from the state.

“When you couple that with one of the highest electric bills in the country and other unaffordable aspects of life, we have an affordability crisis in Connecticut. The last thing we can afford right now are tax increases.”

Harding added, “If you see a budget that has tax increases or modifies or removes the guardrails, you will see Republicans in the Senate oppose it every step of the way. No tax increases, no change in the guardrails. Frankly, when you hear someone say we want to change the guardrails, it is a nice way of saying we want to increase your taxes.”

Proposing specific tax increases

The debate is heating up as the tax-writing Finance Committee and the budget-writing Appropriations Committee are both facing deadlines in the post-Easter days this week, which are key steps in the process before the final negotiations take place between Lamont and top legislative leaders.

Lawmakers are hoping to reach a compromise before the regular legislative session ends on June 4, but they caution that they could return to the Capitol in September because the federal fiscal year does not start until October 1 and they might not know the extent of the federal cuts until later in the year.

But top Democrats and liberals in the Tax Equity Caucus have another view.

Senate President Pro Tempore Martin Looney of New Haven and Majority Leader Bob Duff of Norwalk are proposing specific tax increases that would take effect if Trump and Congress were to enact federal tax cuts for the wealthiest residents. Even if the Connecticut tax increases were approved, the millionaires and billionaires would still see their overall taxes drop because of the federal tax reductions.

While middle-class rates would remain the same, the proposal calls for the top rate for the state income tax to increase to 7.99%, up from the current 6.99%, for couples earning more than $1 million per year and individuals earning more than $500,000 per year. Rates would also increase to 7.5% for couples earning between $500,000 and $999,000 and individuals earning between $250,000 and $499,999 per year, according to the Senate Democratic plan.

“Under the last Trump administration, Connecticut’s top 1% saved $1.2 billion in federal taxes, while working families saw crumbs,” Looney said. “If Washington insists on handing billionaires another tax break, we will ensure some of that windfall comes back to the people of Connecticut to help deal with the massive federal cuts we anticipate.”

Rich get richer

A recent study by the liberal Connecticut Citizen Action Group and Americans for Tax Fairness showed that the net worth of Connecticut’s 14 billionaires, who largely live in lower Fairfield County, increased by $33 billion, or 61%, since Trump assumed office in 2017.

State Rep. Josh Elliott, a Hamden Democrat who leads the tax equity caucus, said the legislature must take action in the coming months due to the moves by Trump.

“We need to make these changes this year because we are not only seeing incredible amounts of dysfunction coming from the federal government, but we want to show the people of Connecticut that we are elected as Democrats for a reason,” Elliott told reporters at the state Capitol complex in Hartford.

“And we’re also here to show that people can get elected on this message that is popular in red, purple and blue districts. In fact, the six districts that House Democrats flipped from Republican to Democrat [in November 2024] were all purple districts, and they all were with candidates that focused on this message of economic populism.”

Rep. Jillian Gilchrest, a West Hartford Democrat who is a member of the tax equity caucus, said it is now time to adjust the guardrails to allow more spending.

“You can’t talk about tax equity in the state of Connecticut without talking about the fiscal guardrails,” Gilchrest said. “Any conversation we have about new revenue, inevitably someone will say what about the spending cap? Even if we bring in new revenue, we’re not going to be able to spend it. So we have to address the guardrails, and the guardrails are not sacrosanct.”

But Republicans think they are.

State Rep. Greg Howard of Stonington said Republicans want to hold the line on taxes and spending. As a middle-class taxpayer, Howard said he is concerned about the level of taxation.

“I’ve always thought the tax system is unfair,” Howard said in an interview. “I think the income tax is solely designed to keep the middle class as the middle class. You can’t work your way out of it. The more you work, the more they take. It discourages you from going out and earning more. I’ve hated the income tax since the day I could understand what it was.”

Besides potential increases in taxes on capital gains, Democrats want to help the middle class by creating a permanent, refundable tax credit of $600 per child for up to three children. The proposal would apply to single parents earning up to $100,000 per year and couples earning up to $200,000 per year. The idea was pushed hard for years by former state Rep. Sean Scanlon, who is now the state comptroller, but the measure has not been enacted.

While Democrats say that taxes must increase on the wealthy, Republicans counter that the richest are already paying much of the income taxes and pass-through entity taxes that provide huge parts of state revenues.

Recent statistics from Lamont’s budget office show that the top 2.5% of tax filers paid 41% of the state income tax in 2022. At the other end, the bottom 49% of filers — representing essentially half of filers statewide — paid only 2.9% of the income tax.

Less than 3% of the state income tax is paid by 830,000 filers who are earning less than $50,000 per year in adjusted gross income — for both singles and couples filing jointly. Filers earning more than $100,000 per year pay 85% of the income tax, while those under $100,000, representing 72% of filers, pay the remaining 15%, according to the statistics.

The top 1%, which includes filers at $1 million and above, pays about 30% of the income taxes. In addition, the state is projected to collect $2 billion this year from the pass-through entity tax, which collects the lion’s share from entities controlled by wealthy small business owners.

An additional $1.4 billion

One of the biggest issues facing legislators is deciding how to allocate $1.4 billion in surplus tax revenues that the state has been collecting since before the recent Wall Street downturn.

The $1.4 billion is collected under the “estimates and finals” portion of the state income tax and comes mainly from capital gains taxes on Wall Street that are paid largely by millionaires and billionaires in Fairfield County. The money is kept in a separate category under the “volatility cap,” created in 2017 by the legislature, which declared that lawmakers cannot spend the money as they had in the past.

Under current state law, the state must transfer the $1.4 billion in surplus tax collections later this year to the state’s pension funds in order to pay down debt.

But House Speaker Matt Ritter of Hartford, the leader of the 102-member Democratic caucus, has called for changing the guardrails and instead allowing the state to spend the money if needed to cover federal budget cuts.

Both Republicans and Lamont respond that no quick moves should be made with the tax surplus money because it would require the guardrail changes that need a vote of three-fifths in both the state House of Representatives and Senate.

“We’re going to stay the course and control what we can control,” Lamont said recently. “But I’ve got to worry what happens in Washington. They represent over $10 billion of our budget, and thousands of so-called state employees are subsidized or paid for by the fed. So we watch that very carefully. I can’t avoid it. I wish I could.”

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