Free Daily Headlines :

  • COVID-19
  • Vaccine Info
  • Money
  • Politics
  • Education
  • Health
  • Justice
  • More
    • Environment
    • Economic Development
    • Gaming
    • Investigations
    • Social Services
    • TRANSPORTATION
  • Opinion
    • CT Viewpoints
    • CT Artpoints
DONATE
Reflecting Connecticut’s Reality.
    COVID-19
    Vaccine Info
    Money
    Politics
    Education
    Health
    Justice
    More
    Environment
    Economic Development
    Gaming
    Investigations
    Social Services
    TRANSPORTATION
    Opinion
    CT Viewpoints
    CT Artpoints

LET�S GET SOCIAL

Show your love for great stories and out standing journalism

Middle-class growth sparks latest surge in CT tax receipts

  • Money
  • by Keith M. Phaneuf
  • January 15, 2019
  • View as "Clean Read" "Exit Clean Read"
Melissa McCaw will be Connecticut's next state budget director.

OPM Secretary Melissa McCaw

State income tax revenues surged upward again Tuesday, but this time it was the middle class — not the wealthy — behind most of the gains.

A new report from fiscal analysts projects overall revenues this fiscal year will surpass budgeted expectations by $464 million — an improvement of $204 million from a rosy revised forecast issued in mid-November.

The consensus report from Gov. Ned Lamont’s budget staff and from the legislature’s nonpartisan Office of Fiscal Analysis also anticipates nearly $500 million in additional revenue during the upcoming two-year budget cycle — an average of almost $250 million per year — where multi-billion dollar deficits deficits loom.

But it remains unclear whether Lamont and the General Assembly can spend much of this projected windfall, given stringent new spending cap rules enacted in late 2017.

“The first half of this fiscal year has included strong performance from our major revenue sources — leading to budget surplus projections with an expected and much-needed deposit to the Budget Reserve Fund  — and that strength is reflected in the consensus revenue estimates we are releasing today,” said Office of Policy and Management Secretary Melissa McCaw, Lamont’s budget director. “Nevertheless, we are continuing to watch recent signals in the economy, such as volatility in the markets or taxpayer behavior in response to federal changes, that could impact our subsequent revenue forecasts.”

According to the new revenue report, receipts from the personal income tax — Connecticut’s single-largest source of revenue — have been upgraded by another $75 million since the Nov. 10 forecast.

But unlike most projections over the past 12 months, gains were not registered in the quarterly filings tied to capital gains, dividends and other investment related income.

This time around, the growth was in paycheck withholding, which represents about two-thirds of the overall $9.7 billion income tax revenue stream. And while Connecticut’s wealthiest households pay the bulk of income tax connected with Wall Street, middle-income families are the chief contributors to the paycheck withholding portion.

Former Gov. Dannel P. Malloy and the General Assembly adopted a budget last spring for the current fiscal year and counted on 4.4 percent growth in paycheck withholding — a robust level for a traditional stable source of tax dollars.

But Comptroller Kevin P. Lembo noted in his last monthly budget forecast, issued just after New Year’s Day, that paycheck withholding had been growing during the first five months of the fiscal year, between July and November, by 8.7 percent.

Unemployment in Connecticut fell to 4.1 percent in November, while personal-income growth in the state matched or exceeded national growth for the second consecutive quarter.

The new forecast also upgraded projections for the state’s second-largest source of revenue, the sales tax. Receipts for the current year are projected to come in $79 million higher than anticipated in mid-November.

Analysts also projected modest growth in receipts from the corporation and inheritance taxes. And the state’s share of video slot receipts from the tribal casinos in southeastern Connecticut is not declining as sharply as originally anticipated.

Video slot proceeds, though down from $274 million last fiscal year to $249 million in the latest report, still are running $25 million higher than anticipated in the mid-November forecast.

Building a buffer against the next recession

If the new revenue numbers hold until the fiscal year ends on June 30, Connecticut has a chance to build upon what appears likely to be a record-setting budget reserve.

Income tax receipts, which frequently have fallen short of state officials’ expectations since the last recession ended in early 2010, have been doing the opposite over the past 15 months.

Connecticut held just $212 million in its rainy day fund in January 2018, a cushion of slightly larger than 1 percent of annual operating costs.

Because some of the state’s tax receipts — particularly those tied to investment earnings — vary greatly from year to year, Lembo recommends a reserve of 15 percent.

But over the past 15 months, Connecticut’s rainy day fund has exploded. It now approaches $1.2 billion. In addition, a special “volatility cap” program designed to force the state to save excess income tax receipts tied to investment earnings currently holds $648 million this fiscal year. These funds would be deposited into the reserve this fall.

Much of this growth, though, has been attributed to one-time factors, particularly changes in federal tax policy that led to changes in state income tax payments.

The uptick in paycheck withholding and sales tax receipts, though, typically are viewed as a good sign of sustained economic growth. And they are one of the chief drivers behind the current fiscal year’s budget surplus, which also is on the rise.

Lembo had projected the surplus $242.4 million earlier this month. It now could rise to $446 million based upon the updated revenue projections. If this surplus also is deposited into the rainy day fund, the total could approach $2.3 billion by the fall — a reserve of almost 12 percent.

The largest reserve in state history involved nearly $1.4 billion held in 2008. At the time it represented about 8 percent of annual operating expenses.

Lamont has said he wants to safeguard the reserve as much as possible.

This could put the new governor at odds, though, with his fellow Democrats in the legislature’s majority.

Analysts had been projecting that state finances, unless adjusted would run $1.7 billion in deficit next fiscal year, with the potential gap stretching to $2.3 billion in the 2020-21 fiscal year.

The new forecast estimates Lamont and legislators can expect an additional $260 million in revenue next fiscal year, dropping the potential shortfall under $1.5 billion. Similarly, the latest projections add another $238 million in revenue to the 2020-21 deficit calculations, whittling the shortfall two fiscal years out closer to $2 billion.

“Connecticut should view these numbers with cautious optimism. The numbers affirm that national growth has benefited Connecticut and the policies of our bipartisan budgets are beginning to move Connecticut in a positive direction,” said Senate Minority Leader Len Fasano, R-North Haven on Tuesday. “However, we must remain cautious and not use early signs of growth as an excuse to abandon fiscal restraint.”

Sign up for CT Mirror's free daily news summary.

Free to Read. Not Free to Produce.

The Connecticut Mirror is a nonprofit newsroom. 90% of our revenue comes from people like you. If you value our reporting please consider making a donation. You'll enjoy reading CT Mirror even more knowing you helped make it happen.

YES, I'LL DONATE TODAY

ABOUT THE AUTHOR

Keith M. Phaneuf A winner of numerous journalism awards, Keith Phaneuf has been CT Mirror’s state finances reporter since it launched in 2010. The former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. A former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of Connecticut.

SEE WHAT READERS SAID

RELATED STORIES
House approves big municipal aid pledge, tax incentive bills
by Keith M. Phaneuf and Mark Pazniokas

The House approved bills Wednesday pledging $100 million-plus in new municipal aid and offering tax incentives to attract data centers.

CT legislature poised to make early budget pledge to help cities and towns
by Keith M. Phaneuf

The state House is expected to approve more than $100 million in new, annual PILOT grants to municipalities.

Boston Fed chief predicts strong economic recovery begins in 2nd half of 2021 if vaccine reaches enough people
by Keith M. Phaneuf

A strong economic rebound also depends on states helping those hit hardest by COVID-19, a federal reserve official said.

A pledge to share sales tax receipts with towns still goes unfulfilled. Was it a case of fiscal bait-and-switch?
by Keith M. Phaneuf

Hundreds of millions of dollars have yet to arrive, leaving municipal leaders wary of new proposed aid.

Finance panel eyes cap on property tax hikes, gears up for another battle over CT’s credit card
by Keith M. Phaneuf

Lawmakers raised bills to cap property tax hikes, and potentially battle Gov. Ned Lamont for control of Connecticut’s borrowing.

Support Our Work

Show your love for great stories and outstanding journalism.

$
Select One
  • Monthly
  • Yearly
  • Once
Artpoint painter
CT ViewpointsCT Artpoints
Opinion The historical basis of zoning begs for reform
by Lawrence Rizzolo

Discussions of race are fraught with emotion. Witness the zoning reforms being discussed in our legislature. I will attempt to advance a dispassionate argument that is based on government-sponsored racism that occurred during my lifetime and led to the structural problems that persist today.

Opinion Lamont must stop waffling on the Killingly power plant issue
by Tennyson Benedict

On January 19, Gov. Ned Lamont gave his bluntest comments yet regarding the controversial Killingly natural gas plant, saying, “I don’t want to build Killingly.”  Yet, Lamont still refuses to wield his executive authority to actually stop its construction, and instead offers vague suggestions that market forces will stop the plant’s construction.

Opinion Religious freedom is less than righteousness
by Spencer Hill

The CT Viewpoints opinion “Religious freedom is more than religion” shows just how entrenched is the sincerely held belief that one man’s notion of “freedom” dictates the liberty of others.

Opinion To boost economy, state should invest in the ‘last mile’ of broadband connectivity
by Thomas J. Peters, Ph.D

In his budget address on February 10,   Gov. Ned Lamont announced his intent to expand broadband connectivity in Connecticut, an effort to be lauded. Connecticut enjoys a significant competitive advantage for economic development in the Connecticut Education Network (CEN), “ a 2,500 route mile, all optical, high-performance internet network.”

Artwork Grand guidance
by Anne:Gogh

In a world of systemic oppression aimed towards those of darker skintones – representation matters. We are more than our equity elusive environments, more than numbers in a prison and much more than victims of societal dispositions. This piece depicts a melanated young man draped in a cape ascending high above multiple forms of oppression. […]

Artwork Shea
by Anthony Valentine

Shea is a story about race and social inequalities that plague America. It is a narrative that prompts the question, “Do you know what it’s like to wake up in new skin?”

Artwork The Declaration of Human Rights
by Andres Chaparro

Through my artwork I strive to create an example of ideas that reflect my desire to raise social consciousness, and cultural awareness. Jazz music is the catalyst to all my work, and plays a major influence in each piece of work.”

Artwork ‘A thing of beauty. Destroy it forever’
by Richard DiCarlo | Derby

During times like these it’s often fun to revisit something familiar and approach things with a different slant. I have been taking some Pop culture and Art masterpieces and applying the vintage 1960’s and 70’s classic figures (Fisher Price, little people) to the make an amusing pieces. Here is my homage to Fisher -Price, Yellow […]

Twitter Feed
A Twitter List by CTMirror

Engage

  • Reflections Tickets & Sponsorships
  • Events
  • Donate
  • Newsletter Sign-Up
  • Submit to Viewpoints
  • Submit to ArtPoints
  • Economic Indicator Dashboard
  • Speaking Engagements
  • Commenting Guidelines
  • Legal Notices
  • Contact Us

About

  • About CT Mirror
  • Announcements
  • Board
  • Staff
  • Sponsors and Funders
  • Donors
  • Friends of CT Mirror
  • History
  • Financial
  • Policies
  • Strategic Plan

Opportunity

  • Advertising and Sponsorship
  • Speaking Engagements
  • Use of Photography
  • Work for Us

Go Deeper

  • Steady Habits Podcast
  • Economic Indicator Dashboard
  • Five Things

The Connecticut News Project, Inc. 1049 Asylum Avenue, Hartford, CT 06105. Phone: 860-218-6380

© Copyright 2021, The Connecticut News Project. All Rights Reserved. Website by Web Publisher PRO