Dan Haar: Tax hike on the rich in Connecticut is a good thought, but a bad idea

CT Insider – Friday, April 25, 2025
Opinion By Dan Haar, Hearst CTInsider Columnist

If we follow the money, Connecticut should tax its richest households a bit more, to pay for services President Donald Trump is cutting — important stuff such as education, health care and food for low-income families.

That’s what the state legislature’s Finance Committee did late Wednesday, voting for a surcharge of up to 1.75 percent on capital gains for the highest earners.

And why not? These are precisely the same households who saw a very large federal tax cut starting in 2018, worth hundreds of thousands of dollars for many of them.

Now Trump and Republicans in Congress want to extend that tax cut. They’re using tariffs that hit the middle class and slashing federal grants and programs to pay for it as they gut the government; maybe even Medicaid, which some experts say could cost Connecticut $1 billion.

Even without Trump’s bait-and-switch to rob the poor and pay the rich, the wealthiest taxpayers have seen their incomes shoot up since the pandemic, while the rest of us are seeing the usual mix of success and struggle, mostly the latter for the working poor. So we should ask the richest among us to kick in a tiny fraction of their federal breaks, right?

The surcharge would hit the capital gains — profits from the sale of assets such as corporate stock, businesses and houses — of people earning $1 million a year or more. It would fetch more than $200 million a year as a temporary surcharge for a few years and would exempt gains from a one-time sale of a house or business.

This makes sense on first glance.

The vote happened as lawmakers take pains to meet human needs and state investments that were squeezed even without the Trump cuts. For example, speaking of Medicaid, that federal-state program has seen reimbursement rates fall so low that it’s hard for patients to find care, and hard for hospitals who offer a lot of Medicaid services to stay open.

The list goes on and on. School lunches, community health programs, college tuition aid for low-income students, tourism dollars to attract visitors, pay hikes for workers at nonprofits doing the toughest jobs for the state, without state employee benefits.

Democrats in the General Assembly, led by Senate President Pro-Tem Martin Looney, D-New Haven, have for years pitched a capital gains surcharge and a hike in the highest income tax rate for the richest taxpayers (6.99 percent since 2015). As Looney said to me in February, after he proposed this year’s Robin Hood tax plan, “Nothing here would make Connecticut an outlier.”

This is the first year since Gov. Ned Lamont took over in 2019 when a tax hike of this sort advanced out of the Finance Committee, as far as I can recall. Now the plan moves to back-room talks to hammer out a $55 billion state tax-and-spending plan for the two years that start July 1.

Lamont remains steadfast: No tax hike.

“We’ve got a good budget, it’s balanced. I don’t think we need to raise any revenue,” the governor told reporters Thursday in Cheshire. “As you know, I’m not somebody that goes for tax increases. What I have done is cut taxes for working families and the middle class. I think that’s the best way to get progressivity into our system without scaring people out of state.”

The Finance Committee, in fact, did advance a $150-per-child tax credit larger than the property tax credit Lamont proposed.

Lamont now faces a tough battle in the pizza-fueled talks set to begin soon. The Finance Committee backed the surcharge 27-21 as a few moderate Democrats including Rep. Kerry Wood, D-Rocky Hill, and Sen. MD Rahman, D-Manchester, joined Republicans in opposition.

But the Republicans and the Democratic moderates are right. They should win this skirmish.

Yes, justice, equity and poetic logic say Connecticut should tax its richest households to make up for shortfalls caused by economic hardship and by Trump’s shortsighted foolery. But we don’t need to do that just yet and the optics would hurt Connecticut.

We’re still posting annual surpluses at or above $1 billion. We have a rainy-day fund of some $4.2 billion. We’ve made state government far more efficient but have more of that to achieve.

We’re not doing as well as Lamont claims — job gains are languishing and we’re still losing residents to other states, though less than before the pandemic — and that’s a reason to hold the line on taxes. And anyway, when it comes to tax collections, we’re in a sweet spot.

Will a small surcharge drive rich residents to move away? That’s an age-old argument. It shouldn’t. Let’s say a Greenwich couple earns $2 million, including $1.4 million in salaries and $600,000 in capital gains. The surcharge would cost them an extra $10,500 at most and probably much less depending on the tax scales.

That’s one-half of 1 percent of their income and remember, that couple saw a federal tax cut many times that size, which Trump now wants to extend.

Trouble is, with Connecticut’s history, we can’t afford the bad optics of a tax hike when we’re still rolling in dough. As Rahman, the state senator from Manchester, pointed out, it’s the spending limit that keeps state services squeezed, not a lack of tax revenue. Democrats also want to bust through the spending limit but that’s another story.

Lamont and the other moderates will feel more pressure from many Democrats this year because of the Trump cuts.

“We’re not acting in a vacuum. Every day when I come to work and I read the news, we’re getting another big budget cut from the feds,” Rep. Mary Mushinsky, D-Wallingford, said at the Finance Committee meeting. “And we’re waiting any minute now for the Medicaid cuts which might be $1 billion… We have constituents depending on these resources.”

She and others, including the committee co-chairs, Rep. Maria Horn, D-Salisbury, and Sen. John Fonfara, D-Hartford, made the point that Connecticut needs to plan for a bad outcome later this year. “It’s coming. We know it’s coming,” Mushinsky said.

Maybe so. But the state needs economic growth more than tax revenue. We can always raise tax rates. Once raised, they tend to stay raised. “There is nothing so permanent as a temporary government program,” Sen. Ryan Fazio, R-Greenwich, said Wednesday, quoting the conservative economist Milton Friedman.

His exhibit A: The “temporary” surcharge on corporate earnings, which began in 1989, is older than he is, though it has stopped and started over the years.

I wish we lived in a world, and a state, where the capital gains surcharge made perfect sense. We don’t.

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