Lawmakers launch two-year study of Connecticut tax system

This policy change would launch a two-year study of Connecticut’s $16 billion-a-year tax system – a move some legislators have predicted could be the most dramatic overhaul of state finances since the income tax was enacted 23 years ago.

A study panel would begin work this August, update the General Assembly in January and finish its review by January 2016.

The study is expected to analyze:

  • Tax fairness and volatility;
  • How the system affects the state’s economic competitiveness;
  • And, whether Connecticut relies too heavily on local property taxes.

Connecticut had relied for decades on its sales tax to provide the chief source of non-federal funds for its government, with taxes on corporations, capital gains and estates providing important supplemental revenue. Fuel taxes were – and remain – the chief means to pay for road, bridge and rail upkeep.

Things changed dramatically 23 years ago when lawmakers and Gov. Lowell P. Weicker Jr. adopted a flat tax on income and lowered the sales tax. They also got rid of a double-digit tax rate on investment income, which instead was subjected to the top income tax rate at the time – 4.5 percent – a big tax break for some of Connecticut’s wealthiest households.

Meanwhile, the property tax remains the chief source of revenue, along with state grants, for city and town budgets.