State officials weren’t thrilled last year to learn Connecticut has a nearly $3 billion difference between taxes owed to the state and actual collections.
But while Connecticut has authorized Gov. Ned Lamont’s administration to whittle down the so-called “tax gap,” most states don’t even bother to track the problem, according to a new analysis from The Pew Charitable Trusts.
And with the federal IRS — which provides much of the tax data states rely upon — continuing to face staffing cuts, the challenge of monitoring unpaid taxes is likely to grow.
“Governments routinely fail to collect this [unpaid] money — sometimes without state policymakers even being aware of the problem,” wrote Josh Goodman, a senior fiscal analyst with Pew. “Yet if states collected even a few percentage points more of what they are legally entitled to, they could afford to cut taxes or invest in priorities in good times — and avoid tax hikes and service cuts in bad ones.”
Connecticut lawmakers and Gov. Ned Lamont agreed last year that the administration would annually assess the state tax gap and offer strategies to mitigate it.
The state had a roughly $3 billion tax gap in 2022, according to the report the Connecticut Department of Revenue Services filed last year. That’s equal to roughly 13% of the total revenues that supported the state budget at that time. And its matches total state dollars spent at the time on Medicaid, Goodman noted.
The state Department of Revenue Services formed a new discovery unit to quickly identify non-filers, increase audit rates and improve outreach to delinquent taxpayers to encourage payments.
But few states even try to adequately estimate the gap, according to Goodman. For more than two decades, Connecticut is one of only eight states that has tried to get its arms around the problem, he wrote, citing a University of Virginia analysis published last year by taxnotes.com.
And that ratio doesn’t appear likely to improve any time soon.
A 2024 Federation of Tax Administrators’ survey of state and municipal revenue departments that found hiring and retention was overwhelmingly the top challenge they face, while one-third of their employees are 55 or older.
Goodman also referenced a January 2026 memo from the U.S. Office of Inspector General that questioned the IRS’ readiness for the 2026 tax-filing season in part due to reduced staffing. All states with income taxes rely heavily on IRS data to help them track local filers.
Connecticut’s next tax gap report is due in December.
“Fiscal transparency is a corner of Connecticut state government,” Lamont’s budget spokesman, Chris Collibee, said Monday. “Few states routinely produce the data sets that are constantly being provided to the [Connecticut] legislature and public. … The Lamont administration, working in partnership with the legislature, is continuously looking for ways to ensure that monies owed to the state are received.”
Lamont’s revenue services commissioner Mark Boughton added that “the more data we provide … the better decisions I think everybody can make about our tax structure and policy.”
Connecticut Voices for Children, a New Haven-based policy research group, called in January for Lamont and legislators to intensify efforts to close the tax gap, saying hundreds of millions in recovered tax receipts could mitigate pending cuts in federal aid.
An omnibus measure that Congress and President Donald Trump approved last July would cut about $1 trillion — mostly from Medicaid — by 2034 to help finance back federal tax cuts. Connecticut officials expect the state’s share of those losses to be in the hundreds of millions of dollars annually starting next fiscal year and growing by the end of the decade.
