Gov. Ned Lamont has steadfastly refused to increase taxes on Connecticut’s wealthiest residents throughout his six-plus years in office.

During that time, legislators have proposed income tax surcharges, mansion taxes and other changes aimed solely at high earners, but they abandoned every measure before final budget negotiations with Lamont.

But many fear that pattern could be tested in the coming months as never before. 

State officials face an unprecedented fiscal double-whammy: federal budget cuts that could easily take hundreds of millions of dollars from Connecticut and its municipalities, and a looming recession could drain billions more.

President Donald J. Trump and the Republican-led Congress want to extend expiring 2017 federal tax cuts, a move that would chiefly benefit households making more than $320,000 per year. And they are seeking more than $880 billion in federal budget cuts to help pay for it, moves state leaders fear will slash resources for Medicaid, special education, food stamps and other programs.

Progressive Democrats in the General Assembly say Connecticut will need to capture a portion of the tax relief that is granted to affluent households to help stop programs from being gutted.

Senate leader: ‘We’ve never seen anything like this’

“I think, in the near term, we’re going to have to have a serious conversation in this state” about boosting Connecticut taxes on the wealthy, said Rep. Jillian Gilchrest, D-West Hartford, co-chairwoman of the Human Services Committee and a member of the House Tax Equity Caucus. “If those who are making the most money in this state — more than most people can imagine — are going to be getting a tax break from the federal government, at the expense of our families … then I don’t think it’s asking much.”

Senate President Pro Tem Martin M. Looney, D-New Haven, who has sponsored many of the progressive tax hikes measures since 2019, said the increases state legislators envision would still leave the wealthy richer than ever. In other words, the extra ask from Connecticut would be smaller than the relief coming from Washington.

Looney noted that federal aid to states traditionally grows during a severe economic downturn. But even with consumer confidence and the stock market shaken by Trump’s recent tariffs — some of which he has since delayed — Congress continues to move forward with plans to slash aid to states.

“We’ve never faced anything like this,” Looney added. “We’ve never seen a [recession] situation where federal aid was not at least a relative constant.”

During both the economic downturn that followed COVID’s first appearance in 2020 and what economists called the Great Recession from December 2007 through mid-2009, Connecticut saw its resources from Washington grow considerably.

Congress followed the pandemic with several aid bills, the chief of which, the American Rescue Plan Act, sent about $3 billion to state government in Connecticut alone and billions more to local school districts, regional councils of government and other entities.

And in 2009, the American Recovery and Reinvestment Act sent nearly $5 billion to Connecticut, which used the funds to bolster education, housing, human services, economic development and transportation.

But what happens if the nation slides into an economic recession while Washington is cutting, not expanding, aid to states?

The National Bureau of Economic Research, the nonprofit research organization generally recognized for declaring the start and end of recessions in the U.S., has made no pronouncement to date.

But the stock markets largely have slumped since Trump’s Feb. 1 executive order announcing his first import tariffs. And the Consumer Confidence Index hit a 12-year low in late March.

If a new recession were to hit Connecticut as hard as did the 2007-09 downturn, which reduced General Fund tax receipts by 10% within two years, the state’s coffers could lose more than $2 billion per year in revenue.

Earlier this spring, Lamont outlined scenarios in which Connecticut could lose anywhere from $186 million per year to $880 million — in Medicaid funds alone — based on the reduction scenarios circulating on Capitol Hill.

None of that includes potential cutbacks in federal aid currently provided to municipalities and public colleges and universities, losses that state officials fear could stretch into the hundreds of millions of dollars.

Is CT’s rainy day fund enough? Questions grow.

Both Looney and House Speaker Matt Ritter, D-Hartford, have questioned whether the state’s record-setting $4.1 billion budget reserve, though impressive, could stem those negative fiscal tides for long.

Democratic leaders have suggested, in that event, that Connecticut suspend one of its chief budget caps, a controversial provision that forces legislators to save a portion of income and business tax receipts. This cap has captured an average of $1.4 billion each year since 2017 — about 6% of the General Fund — and used it to build reserves and reduce the state’s considerable pension debt.

Critics say the program has been too aggressive, leeching far too many dollars away from education, health care and other core services.

Lamont, who initially rebuffed efforts to reform this cap, conceded in February that changes were necessary and agreed to return a modest $300 million, or about one-fifth of the average annual savings, to the General Fund to support services.

But the governor, a fiscally moderate Democrat, says it’s premature to weaken the budget cap any further to offset what many say is an impending fiscal crisis. Lamont also has repeatedly said boosting taxes on the rich would cause them to flee the state, an argument many of his fellow Democrats don’t accept.

Lamont’s budget spokesman, Chris Collibee, said Monday the governor still isn’t ready to commit more resources now to offset the financial pain that may come.

“The administration is having ongoing discussions with legislative leadership about a path forward after we see a final federal budget and know its impact on Connecticut,” Collibee said. “Especially in light of recent economic concerns, his preference is increasing the number of taxpayers in our state, rather than increasing taxes.”

Lamont is not alone.

The Yankee Institute, a conservative fiscal policy group based in Hartford, recently launched an online petition urging the governor to leave the budget controls alone.

“This isn’t a fiscal emergency — it’s a spending trap,” the institute wrote in a statement.

“Legislative leaders are pressuring Gov. Lamont to declare a ‘fiscal emergency,’” it continued. “Not because there’s a real crisis, but so they can pause Connecticut’s fiscal guardrails and ramp up spending.”

State Senate Minority Leader Stephen Harding, R-Brookfield, also called for Lamont to preserve the controls.

“The focus is on you now,” Harding said. “Stand strong against your fellow Democrats who want to break the guardrails. Stand strong against the job-crushing tax hikes that this will cause.”

But many Connecticut Democrats say the states’ wealthiest residents, who were supposed to start paying more federal taxes with their spring 2026 income tax returns, will continue to enjoy tax cuts — not “job-crushing tax hikes” — under the agenda Trump and the GOP-led Congress are following.

Since Trump signed the 2017 federal income tax cuts, the collective fortune of Connecticut’s 14 billionaires has grown by $33 billion or 61%, according to a new analysis released this week by the CT Citizens Action Group and Americans for Tax Fairness.

And according to the nonpartisan Center on Budget Policies and Priorities, a Washington-based fiscal think-tank, households in the top 5% of earnings — those making more than $320,000 per year — could receive roughly half of the proposed windfall from extending those cuts through 2034.

To pay for that relief, programs that fund health care, special education, food and heating assistance likely will be diminished.

Rep. Josh Elliott, D-Hamden, founder of the tax equity caucus, says drawing down on the state’s rainy day fund and scaling back budget caps won’t provide enough long-term funding to even adequately mitigate the losses Connecticut is facing.

“I think it’s going to take everything,” Elliott said, adding that includes some of the federal tax relief that Connecticut’s highest earners will receive.

“Progressive taxation is the only path to a stable, long-term revenue stream capable of meeting the growing needs of our communities,” added Norma Martinez HoSang, director of Connecticut For All, a progressive coalition of more than 60 faith, labor and other civic organizations.

CT child tax credit remains on the table

Progressive Democrats also aren’t looking just to raise more dollars for core services like health care and education.

They also want to cut state taxes on low- and middle-income families hurt by inflation in recent years and potentially facing a big cost-of-living jump related to tariffs.

A report last week from Yale University’s Budget Lab estimated that tariffs imposed this year to date could cost the average household an extra $4,700 on a wide array of goods and services. [Trump announced a three-month pause on certain tariffs last week but left in place new duties on Chinese goods.]

The most popular proposal involves creating a new $600-per-child credit within the state income tax, up to a maximum benefit of $1,800 per household. Given the strains facing state finances soon, though, some legislators have said this tax cut might need to be phased in over several years.

The state’s own fairness studies show that Connecticut’s combined state and municipal tax system disproportionately burdens the poor and middle class, largely due to its reliance on property taxes to fund city and town government services, including K-12 education.

Last year’s study found the lowest-earning 10% of households effectively spent almost 40% of their income in 2020 to cover state or municipal tax burdens, more than five times the rate faced by Connecticut’s highest earners and two-and-a-half times the statewide average.

Sen. Matt Lesser, D-Middletown, the other co-chair of the Human Services Committee and a supporter of a state child tax credit, said he remains hopeful Lamont will modify his opposition to taxing the wealthy as the full extent of cuts to state programs becomes clearer.

“I think when the numbers come out,” Lesser added, “you may see a change of heart. … Any way you shake it, that will have a humungous human toll in Connecticut.”