For decades, Connecticut’s strategy regarding its income tax has been simple: Tax the rich at lower rates than nearby states do in the hope that top earners will move here and stay.

But Connecticut’s neighbors aren’t interested in competing.

New York and New Jersey — Connecticut’s chief rivals to house the Wall Street workforce — raised their top marginal rates shortly after the COVID pandemic began to help deal with the fiscal chaos.

Massachusetts voters overwhelmingly approved a surcharge on top earners four years ago to invest in education and transportation. Receipts have tripled original expectations — a mathematical impossibility if the state’s wealthy residents were fleeing.

Maine and Rhode Island ordered higher top income tax rates this spring — the latter doing so to help provide new tax relief for middle-class households with children.

Meanwhile, Connecticut officials increasingly insist the state has become unaffordable. Some say it’s time to learn from our neighbors and reform a system long known to disproportionately burden the poor and middle class.

‘A hard look’

“I think it’s time for us to take a hard look at the context in which we live,” Rep. Maria Horn, a Salisbury Democrat and co-chair of the General Assembly’s Finance, Revenue and Bonding Committee, told the Connecticut Mirror this week.

Connecticut has seven graduated rates taxing various portions of household income between 2% and 6.99%. Most middle-class income is taxed between 4.5% and 6% while the wealthiest households pay 6.99% on all earnings.

New York state has graduated rates ranging from 4% to 10.9%. And though its top rate is set to expire next year, it will return to a pre-pandemic level of 8.8%, still well above Connecticut.

New Jersey graduated rates start at 1.4% and max out at 10.75%.

Massachusetts taxes most income at 5%, but the rate on income greater than roughly $1.1 million this year is 9%.

In Maine the new range is 5.8% to 9.15%. In Rhode Island the 3.75% to 5.99% range will grow gradually at the top end, reaching 8.99% by 2029. And next year Rhode Island will provide up to $330 per child to low- and middle-income families through a new income tax credit.

“I’ve been paying attention to what’s around us,” Horn said, adding the tax changes in neighboring states are “part of a feeling of real unfairness about who’s paying for services.”

Connecticut’s own research supports Horn’s thinking.

Since 2014, the state Department of Revenue Services has been tasked with generating tax incidence analyses, which assess how state and municipal tax burdens can be shifted, and who ultimately pays.

Besides landlords baking property tax obligations into rent, another example involves gasoline distributors and filling stations, which add the wholesale gasoline tax they pay into the price motorists see at the pump.

Over the past decade, these incidence analyses have described similar situations.

The lowest earning 10% of Connecticut workers effectively lost 40% of their income to state and municipal tax burdens in 2022, according to the most recent study, done in late 2025. The middle three deciles lost 16% to 20%, and the highest-earning decile lost just 10.6%.

CT hasn’t raised taxes on the wealthy to finance cuts for others

In recent years, officials wouldn’t consider tax cuts for the poor and middle class if it meant raising taxes on the rich to pay for them.  

Connecticut officials considered creating new income tax credits for renters and households with children this year — proposals that together could have returned $900 million annually to poor and middle-class families. The state did invest $700 million in new town aid and an affordable child care initiative.

[RELATED: How much more state money will your town get?]

But with assistance from Washington eroding — and Connecticut still following an aggressive program to pay down its massive pension debt — officials decided the state couldn’t afford direct tax relief right now.

Horn didn’t call for immediate tax hikes on the wealthy, but she noted that with Washington slashing human service programs, Connecticut no longer can dismiss plans to help working families simply because they might necessitate modest tax hikes on those who can afford them.

“We ought to think holistically about our overall revenue, about who pays or who doesn’t,” she said.

Connecticut Voices for Children, a progressive policy group based in New Haven, has challenged lawmakers several times in recent years to consider boosting income tax rates on the wealthy to finance meaningful relief for the rest.

“In states like Connecticut — where the income and wealth disparities are some of the widest in the country — the legacy of status quo policies, especially as it relates to our tax code, has created even more resentment between the billionaire class and everyone else,” said Emily Byrne, executive director of Connecticut Voices.

“People are working more and more and getting nowhere while the rich and powerful have figured out how to avoid paying taxes,” she said.

Rep. Josh Elliott of Hamden, who founded the House Progressive Tax Caucus and who is challenging Gov. Ned Lamont for the Democratic gubernatorial nomination, said Connecticut’s upside-down tax system has pushed too many families to their financial breaking point.

“We can either fix this before the pitchforks come out — or by pitchforks coming out,” he said.

Lamont, a fiscally moderate Democrat and wealthy Greenwich businessman, remains the chief obstacle to any proposal to boost taxes on Connecticut’s top earners, insisting it would prompt them to flee the state.

“Governor Lamont is committed to more taxpayers, not more taxes,” has become a mantra for the administration in recent years.

The governor, who approved Connecticut’s first income tax rate cut in nearly 30 years in 2023 — saving middle-income households about $300 annually — said this week he’s not done providing relief.

“As we build the next budget, we’re looking at more ways to ease costs for the middle class, because in Connecticut, hard work should actually get you ahead,” Lamont said in a written statement.

Is a flat income tax the best option?

Other moderates in the legislature’s Democratic majority, along with most Republican lawmakers, also oppose higher tax rates on the rich.

And Sen. Ryan Fazio of Greenwich, the GOP gubernatorial nominee, said that while Connecticut must do more to assist the middle class, it shouldn’t tap the wealthy to finance that relief.

“Investment is mobile, it can go anywhere,” Fazio said, adding that the higher income taxes in neighboring states offers Connecticut an opportunity to attract more wealth.

The Tax Foundation, a Washington, D.C.-based fiscal policy think tank, reported last October that, despite trends in the Northeast, more states nationally are moving toward a flat income tax rather than a progressive system with increasing rates on higher earners.

A uniform rate serves as a political barrier to rate hikes, Janelle Fritts, a senior policy analyst for the foundation, told CT Mirror. “It’s harder to raise taxes when everyone would feel the increase, rather than just a subset of residents,” she said.

Flat income taxes also are less complicated, making it easier for states to estimate revenue accurately. They also are more attractive to certain taxpayers and businesses.

“Competition between states matters,” Fritts said. “People and businesses are increasingly mobile, and states are working hard to attract them.”

But despite his opposition to increasing taxes on Connecticut’s wealthy, Fazio said the state must immediately reduce tax burdens on a middle class that is bearing “the brunt of the burden.”

That means finding ways to trim state spending. Republican legislators say Lamont and the Democratic majority could have done so already: by scaling back generous raises to state employees; shrinking administration and finding other efficiencies at public colleges and universities; and curbing health care benefits for undocumented children and adults.

But Democrats note that Fazio and his fellow Senate Republicans didn’t propose a budget during the legislative session. In other words, it’s easy to suggest cost-cutting ideas, but harder to make the numbers add up.

CT is only state lacking per-child income tax credit

Meanwhile, the United Way of Connecticut has been spearheading a push for tax relief it’s convinced would draw strong support from both parties.

The nonprofit, which estimates about 40% of households here can’t fund a basic “survival budget” that covers food, housing, utilities, childcare, healthcare and transportation, notes Connecticut is the only state with a broad-based income tax with no child tax credit.

Slightly more than half of the state House of Representatives, 76 out of 151, and almost two-thirds of the Senate, 23 out of 36, cosponsored at least one bill to create a child tax credit last spring.

Many bills draw support from legislators outside the group that formally introduces them. And though most sponsors were Democrats, many Republicans have said the legislature’s focus should be on relief for middle-income families.

The most popular version would have provided $600 per child, up to a maximum of $1,800 per household, costing the state about $350 million to $400 million per year.

Even with the new investments in municipal aid and child care, Connecticut expects to close the current fiscal year with more than $1.7 billion unspent. And since aggressive new budget caps were enacted in 2017, annual surpluses have averaged more than $1.8 billion, which represents more than 8% of the General Fund.

Lisa Tepper Bates, president and CEO of the United Way of Connecticut, said when Rhode Island officials projected a budget surplus this past spring, “their instinct was to provide direct support to families during this very hard time.”

Bates added that even if Connecticut officials aren’t watching tax reform efforts in other states, they shouldn’t doubt that Connecticut taxpayers are.

“Young people from Connecticut may be looking broadly [across] the Northeast when they decide where to settle,” she said.

Meanwhile, Byrne added that state’s new investments in town aid, education and affordable childcare are important — and more funding is needed for affordable housing, health care and human services. But Connecticut needs to address tax inequity as well to help most families.

The states around us have figured this out,” Byrne said. “They’ve recognized that through progressive revenue, government can help people start to dream again.”