Connecticut’s Wealthy Pay Smaller Share of Income
Than Most Residents in State and Local Taxes
January 2010
Even taking into account income taxes increases approved in 2009 for the state’s high-income residents, the
wealthiest Connecticut residents pay less than half the percentage of their income in state and local taxes than do
most other residents. After federal deductions for state and local taxes, Connecticut’s low- and middle-income
families pay close to 10% or more of their incomes in state and local taxes, while the top 1% of income earners pay
just under 5%. Most would agree that the best off should pay a tax rate that is at least equal to the tax rate of the
least well off. Connecticut’s state and local tax system, even by this conservative standard, is deeply flawed and
imbalanced.
Connecticut’s regressive state and local tax structure also exacerbates income inequality (Connecticut already has the
second highest income inequality in the country1) and weakens the state’s ability to raise revenue. As a percent of
aggregate personal income, Connecticut raises the least state and local revenue of any state besides New
Hampshire.2 As the state considers hundreds of millions of dollars in cuts to health, education, and other needed
services and faces projected budget shortfalls of over 3 billion per year starting in FY2012, Connecticut’s tax system
needs to be reformed to meet current and future needs in the state.
Connecticut State and Local Taxes By Income Group, 2007
Share of Family Income for Non‐Elderly Adults
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
12.0%
9.7%
9.9%
9.6%
8.5%
7.6%
4.9%
2.0%
Income, Property, and Sales tax, after Federal Offset
0.0%
Lowest Second Middle Fourth Next 20%
20%
20%
20%
15%
Next 4%
Next 1%
Note: Graph reflects changes in law enacted through October 2009
Source: “Who Pays?” Institute on Taxation & Economic Policy. November 2009
Hero, J. Connecticut Leads the Nation in Multiple Measures of Income Inequality, 2007. Connecticut Voices for Children. February 2009.
2 Center on Budget and Policy Priorities analysis of U.S. Census and Bureau of Economic Analysis data.
1
33 Whitney Avenue • New Haven, CT 06510 • Phone 203-498-4240 • Fax 203-498-4242
53 Oak Street, Suite 15 • Hartford, CT 06106 • Phone 860-548-1661 • Fax 860-548-1783
Web Site: www.ctkidslink.org
E-mail: [email protected]
Connecticut State & Local Taxes, 2007
Source: “Who Pays?” Institute on Taxation & Economic Policy. November 2009
A closer look at the Connecticut’s tax system also reveals:
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Connecticut is among the ten states with the highest taxes on the poor.
Even though they earn the highest average income in the country, the top 1% in Connecticut pay a lower
proportion of their income in state and local taxes than the top 1% in most other states (4.9% in
Connecticut compared to a 5.2% 50-state average).
While some assert that Connecticut’s wealthiest families pay more than their fair share of tax, citing income
tax paid as a share of the state’s total income tax returns, it is also true that they report the largest share of
income in the state. The top 1 percent of earners in 2007 paid 37% percent of the state’s total income taxes,
but also reported 35% of the state’s total income. So the share of taxes paid by the wealthy is a reflection of
the fact that they enjoy a larger share of Connecticut’s total income than other residents, not that they are
taxed far more heavily.3
As the table above shows, some taxes, such as sales and property taxes, are regressive, meaning that low income
people must pay more of a share of their income on them than high income people. Other taxes, such as the
income tax, are the opposite (progressive). Currently, regressive taxes in Connecticut outweigh progressive taxes,
which places a higher overall tax burden on low- and middle-income households. A more progressive state income
tax would bring better balance to Connecticut’s tax system. It would make Connecticut’s tax structure more fair,
raise needed revenue, and bring it in line with other high-income states like New Jersey, New York, and Maryland.
Last year’s marginal rate increase on families earning over 1 million fell short of what was necessary to close the
budget gap, and, as the table above shows, left a tax system that still largely benefits the wealthy.
3
Connecticut Department of Revenue Services, 2007 Personal Income Tax data, "All Filers" analyzed by Connecticut Voices for Children.