State Capitol
State Rep. Jason Rojas, D-East Hartford Jacqueline Rabe Thomas /

Democratic legislators are proposing a tax increase on the investment income of Connecticut’s wealthiest households to help close the state budget deficit, putting them on a collision course with a Democratic governor opposed to raising any tax rate.

This proposal is expected to enjoy strong support from leaders in the House and Senate’s Democratic majorities, but Gov. Ned Lamont has said he opposes any effort to raise the income tax, arguing it would weaken Connecticut’s economy and drive wealthy taxpayers from the state.

“I’ve been pretty strict on not raising tax rates,” Lamont reiterated Thursday. “Everybody comes  in and goes, ‘C’mon on gov, it’s just a half a point. It’s just another point. It’s not that big a deal.’ But it’s the fourth time in 12 years or something like that.”

The proposed levy would apply 2 percentage points only to income from capital gains and only to households already paying the top state income tax of 6.99 percent. This applies to single filers earning more than $500,000 annually and couples topping $1 million.

The bill, raised by the Democratic majority on the Finance, Revenue and Bonding Committee, was posted Monday on the panel’s website. The nonpartisan Office of Fiscal Analysis had not yet prepared an estimate on how much the tax would raise.

But a source familiar with the measure said it’s anticipated to raise at least $200 million per year.

“I think this is an attempt to have a more balanced approach to the revenue side of the budget, in terms of who’s contributing,” said Rep. Jason Rojas, D-East Hartford, co-chairman of the Finance, Revenue and Bonding Committee.

While Lamont has promised to hold the line on tax rates, he has proposed increasing taxes. His budget plan would increase revenues through the sales tax and through sin taxes — levies on sugary drinks, plastic bags and vaping products.

Gov. Ned Lamont

These taxes are seen as more regressive, meaning the same rate is charged to all taxpayers, regardless of their personal wealth or poverty.

The administration has countered that while its plan is not as sensitive to wealth disparities as an income tax hike would be, it does have progressive elements.

“It makes the current sales tax more progressive by broadening its base to include professional services like architecture, golf instruction, and horse training as well as luxury goods like boats and ski passes, rather than increasing the sales tax rate on everybody,” Lamont spokeswoman Maribel La Luz told the CT Mirror earlier this week.

“We haven’t seen the proposal yet therefore would like to reserve final judgment,” La Luz added Thursday. “But simply put, Connecticut’s tax structure needs to be competitive, not just with our neighboring states, but with states like Florida, North Carolina and Texas.”

La Luz said “Governor Lamont’s priority is a sound sustainable budget supported by recurring revenue streams that fund vital state services, provides residents and employers with confidence in the state’s future. An increase in the capital gains rate would put Connecticut at a competitive disadvantage and impair our economic climate in the near and long term.”

Legislators said they were well aware of how how their plan would be received by Lamont.

“The governor has given a pretty clear direction about how he feels about income taxes,” Rojas said.

But he quickly added that Lamont also has said he has an open-door policy and has shown a willingness to discuss all ideas to solve the latest state budget crisis.

Rojas also said he expects the measure will enjoy strong support from top Democratic leadership.

House Speaker Joe Aresimowicz, D-Berlin, has said he’s willing to consider either a new top income tax rate, or a special rate on large capital gains, if the receipts are dedicated to pay down pension or bonded debt, or to avoid bonded debt by paying cash for capital projects.

Senate President Pro Tem Martin M. Looney, D-New Haven, a longtime advocate for a more progressive state income tax system, recommended establishing a capital gains surcharge rate in 2015.

Connecticut imposed a separate tax on capital gains throughout the 1970s and 1980s, applying a rate as high as 7 percent. At the same time, it also taxed income tied to interest and dividends earned by wealthy households, applying a rate as high as 14 percent. The sales tax also was 8 percent then.

All of these levies were reduced dramatically — in one of the largest tax cuts for the wealthy in state history — in 1991.

Legislators and then-Gov. Lowell P. Weicker Jr. enacted the first general state income tax at that time, and ordered a new top rate on all income — from capital gains, other investments, as well as from salaries — of 4.5 percent. The sales tax rate was cut by one-fourth to 6 percent, though it has since been bumped to 6.35 percent.

So while low- and middle-income households saw their state taxes rise, the wealthiest residents watched them drop.

Since 1991 Connecticut legislatures and governors gradually have raised the top rate on the income tax, hitting 5 percent in 2003, 6.5 percent in 2009, 6.7 percent in 2011 and 6.99 percent in 2015.

Progressive Democrats in the House noted earlier this session that it wasn’t until 2015 that Connecticut’s wealthiest households again paid the 7-percent state income tax rate many of them faced before 1990.

That’s because research shows Connecticut’s highest earners derive the bulk of their income from capital gains, dividends and other investment earnings — and not from salaries.

Rep. Vincent Candelora, R-North Branford, talks with reporters Thursday outside the Secretary of the State’s Office. Keith M. Phaneuf /
Rep. Vincent Candelora, R-North Branford, talks with reporters Thursday outside the Secretary of the State’s Office. Keith M. Phaneuf /

According to a 2018 report from nonpartisan fiscal analysts, a Connecticut household earning $96,000 per year generates less than 10 percent of its income from investments or other earnings that much be reported quarterly.

But for a household making more than $2 million per year, the average share of earnings from investments approaches 79 percent.

Deputy House Minority Leader Vincent J. Candelora, R-North Branford, a longtime member of the finance committee, said that while there are “huge elements” of regressiveness in Lamont’s tax plan, “a new bill that creates a wealth tax” is equally problematic.

“Yet again we’re seeing the tax code being used to go after certain segments of society,” Candelora said. 

But neither Candelora nor other Republican legislators have pledged to offer an alternative plan to balance the next, two-year state budget.

The administration says state finances, unless adjusted, will run $1.7 billion in the red next fiscal year and $2 billion in deficit in 2020-21 — potential gaps of 9 and 10 percent, respectively.

“What kind of process do we have if my (Republican) colleagues on the finance committee aren’t offering alternatives for us to consider?” Rojas responded. “I guess you have to question what kind of role they want to play in this process.”

In the 2018 race for governor, Republican Bob Stefanowski promised he would eliminate the income tax over eight years, never saying what taxes he would impose to replace a levy that raises about half of all state revenue.

“Bob was going to eliminate taxes. He was going to eliminate all these taxes,” Lamont said. “I’ve tried to be relatively frank about what i want to do. And that’s give you a little bit of predictability and consistency in terms of taxes as well as aid to our municipalities. So I am not inclined to raise any of those rates.”

Keith has spent most of his 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. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

Mark is the Capitol Bureau Chief and a co-founder of CT Mirror. He is a frequent contributor to WNPR, a former state politics writer for The Hartford Courant and Journal Inquirer, and contributor for The New York Times.

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  1. WAIT A MINUTE!!! The only reason the income tax was passed in 1991 was the state agreed to also have a new spending cap that would force politicians to spend within our means. The spending cap was never implemented (even today it is not as the constitutional amendment was intended) so a $10 Billion problem in 1991 is now a $100 billion problem. We already know from Gov. Malloys policies that higher taxation will not stimulate economic growth so this is nothing more than money grab to pay for services we can no longer afford.

  2. What they should propose is a 20% cut in pay to all legislatures. No state vehicle use and no reimbursement to get to work if they use their own car. And Lamont is rich like Trump, just not as successfully rich, he should donate his salary just like Trump does. Come on lawmakers, set the example and be leaders!!

    1. Actually one could argue we’d be far better off with competitive salaries for full time Legislators plus funds suitable for expert staff. A full time Legislature might encourage candidates with substantial business and professional resumes. One suspects many of our part time Legislators have major priorities elsewhere rather than the part time Legislature.
      The old maxim that “we ultimately get what we pay for” may have currency here.

  3. I predicted an increased tax on capital gains in a post here. Democrats had obvious reasons to like it.
    But there’s a major problem: revenues tend to fall sharply in recessions, just when expenses rise and other tax revenues decline.
    It produces more revenue when less is needed. And the state’s reserve fund may not hold any excess. Even this year, a good year for the economy nationally, CT is likely to use a portion of reserves for the current budgets.
    Though I expect some version of this tax to pass, it should be recognized that reliance on this tax will make bad years worse.

  4. Proposals to tax the wealthy – 108,000 CT families reportedly have over a million in investable assets – ought also consider the offsets.
    First, new taxes on the wealthy discourage outside firms to invest in the State potentially producing new well paying jobs.
    Second, new taxes on wealthy encourage wealthy families to leave CT. Especially very wealthy families. Lets remember that despite new inflows of residents, many of whom were lower incomes, CT’s overall population remained essentially unchanged for the decade ending in 2018.
    Third, new taxes on the wealthy encourage owners of family owned firms to exit CT thereby reducing taxable income and available jobs.
    Fourth, the sheer size of the CT Budget Deficit, reportedly in the $2 billion range, far exceeds what might be reasonably expected from new taxes on the wealthy.
    Fifth, as wealthy residents exit high end housing prices tend to stagnant or fall. According to Zillow some 4,000 plus Gold Coast homes are for sale. So as wealthy residents exit the community Grand list declines and the property tax burden is spread over those who stay.
    Sixth, CT’s economy has remained stagnant for an entire decade. Despite the nation’s highest per capita income. Clearly that high average wealth hasn’t translated into economic performance. So its not likely that raising taxes on the wealthy with expected exits of wealthy from CT will improve economic performance.

    At day’s end higher taxes on the wealthy maybe good politics. But it doesn’t really bring in enough revenue to resolve the current Budget deficits of about $2 billion. Other forms of taxation are need that bringing in far more revenue. Or unusual efforts could be mounted to decrease State Budget outlays. So far such proposals for budget reduction haven’t gained much traction.
    Resolving the CT Budget deficit requires as a practical matter a menu of new taxes.

    So taxing the wealthy may have some traction. But the revenues potentially available just aren’t nearly large enough to make a real dent in the estimated $2 billion State Budget deficit.

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