Many policy groups, political candidates and others insist Connecticut must cut taxes again next year, particularly on poor and middle-class families, to combat a worsening affordability crisis.

But despite a decade of huge surpluses, the state’s own projections show a recession would quickly make that unaffordable, especially now that Connecticut has been weaned off the huge pandemic aid it enjoyed in recent years.

State officials could pay for tax cuts, in theory, by cutting government services, something governors and legislators historically try to avoid during a downturn. That option is further complicated by huge cutbacks in federal human services programs that Connecticut already is trying to mitigate.

Or, officials here could finance relief for low- and middle-income households by boosting income taxes on the wealthy — something they haven’t done since 2015 and which likely would expose sharp political divisions.

“Connecticut is capable of enacting bold policies that build an economy that works for all of us, but we have to be willing to change our tax code so that the wealthy start paying their fair share,” said Emily Byrne, executive director of Connecticut Voices for Children.

Byrne’s group, along with the United Way of Connecticut, more than half of the current General Assembly and others, support a new state income tax credit for low- and middle-income households with children.

But that’s just one of the tax-cutting efforts building support for the regular 2027 General Assembly session, which starts Jan. 6.

The Connecticut Project, a nonprofit social and economic advocacy group focused on making the state more affordable, is spearheading efforts for a new credit for renters, also focusing on low- and moderate earners.

The most popular child tax credit proposal would cost state government about $350 million to $400 million per year, according to nonpartisan analysts. Renters’ credit proposals reviewed but not approved by lawmakers last year would cost anywhere from $200 million to $575 million annually.

And Republican legislators’ proposals to cut income tax rates would cost the state almost $1 billion annually by 2028.

Can state government afford tax cuts next year?

At first glance, all these proposals seem affordable without having to raise taxes on anyone.

State finances have finished, on average, with $1.8 billion unspent since new budget caps were installed in 2017. That’s an amount of black ink equal to about 8% to 9% of the General Fund.

The post-2017 surpluses are almost 90 times the size of the 0.1% average cushion Connecticut budgets generated over two decades prior.

A closer look shows those surpluses were not only statistical outliers but are already at risk of eroding.

When this November’s gubernatorial winner is sworn in and the 2027 legislative session convenes in January, it will mark the longest stretch between state income tax increases since the levy was enacted in August 1991.

But the chief reason those huge surpluses are at risk involves the $4.2 billion in emergency federal COVID assistance Congress sent state government here through the Coronavirus Relief Fund and the American Rescue Plan Act.

As spending caps were extracting $1.8 billion yearly from education, healthcare and other core services over the past six years, Gov. Ned Lamont and Connecticut legislators simply replaced many of those lost dollars with COVID grant funds, which weren’t subject to regular budget rules.

But that emergency federal aid largely was exhausted by late 2025, and Connecticut’s finances already are showing the strain.

State officials had to employ an accounting gimmick to divert $712 million headed for surplus into a new program to expand affordable childcare.

And as they ran for reelection this summer, they also formally exceeded a spending cap three times to redirect another $1.2 billion to cover Medicaid shortfalls, soften cuts to federal human service programs and boost town aid by $280 million.

That local aid funding was ordered as a one-time exception, meaning officials have no approved waiver, at least for now, to maintain the assistance next year.

Fears of economic weakness continue

And if Connecticut’s finances are feeling the strain now, what happens if the global economy continues to slip and tax revenues shrink?

In a May 29 interview with Bloomberg, Mark Zandi, chief economist at Moody’s Analytics, called the U.S. economy “uncomfortably close” to recession, citing high oil prices, inflation and the ongoing war with Iran among other risk factors.

Many economists since then have said they expect a softer economic transition, but problem signs remain.

Connecticut Voices reported in late August that nearly 63,000 Connecticut residents have lost federal nutrition benefits since last July — roughly double state officials’ projections. And more cutbacks to federal human service programs take effect in 2027.

In early September, the United Way found about 40% of households here can’t afford a basic survival budget.

And diesel fuel that powers the trucks delivering most groceries and department store goods to Connecticut hit an all-time high in late September.

States typically respond to a recession by drawing down reserves, hoping to delay program cuts and tax hikes for as long as possible.

Connecticut, which used its recent surpluses to build reserves and pay down pension debt, still holds a record $4.5 billion in its rainy day fund. That represents 18% of annual operating expenses and is almost triple the safety wall the state built just prior to the Great Recession of 2007-09.

Despite that, an analysis by Lamont’s budget office last November showed surpluses would vanish, the reserve would be gone, and the General Fund would be 3% in debt within two years of a severe recession.

A more moderate downturn could just empty the rainy day fund by 2029.

Is a class-based tax war in CT’s future?

But either scenario likely eliminates the prospect of paying for new tax cuts out of surplus.

Connecticut Voices has urged lawmakers for years to raise taxes on the wealthy to preserve services and finance tax cuts for low- and middle-income households. This enables relief without destabilizing the state budget.

Connecticut For All, a progressive coalition of more than 60 faith, labor and other civic organizations, also supports this option.

“Connecticut families need relief, and our state can provide it by asking the richest among us to contribute their portion,” said Constanza Segovia, co-director of the coalition.

Others tax-relief advocates are still developing a position.

The United Way of Connecticut hasn’t proposed raising top income tax rates to finance a child tax credit but also has not ruled it out.

The Connecticut Project is “actively considering our position” on whether a wealth-related tax hike should be used to pay for new tax breaks for renters, said communications director Meghan Holden.

But she also noted the advocacy group is closely studying a recent poll it commissioned from the Survey Lab at Wesleyan University.

It found 73% of voters back a tax credit for renters and 70% support a child-based income tax break. It also reported that 76% support “increasing taxes on millionaires and billionaires.”

“We’ll be basing our position on what working class people are telling us,” Holden said, adding her group would again advocate for a renters’ credit in the upcoming General Assembly session.

Any tax redistribution plan next year will face opposition from the governor.

Lamont and Republican gubernatorial contender Ryan Fazio, both from the affluent Fairfield County suburb of Greenwich, share the conviction that taxing the rich would spark an exodus of wealthy households from Connecticut.

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

“There’s a reason you see economic growth from people moving to states with low income taxes,” Fazio said.

House Minority Leader Vincent J. Candelora, R-North Branford, says legislators have other options to finance relief besides taxing high-earners.

The state could redirect hundreds of millions of dollars annually, he said, by scaling back generous raises for state employees, canceling Medicaid benefits for undocumented residents and cutting budgeted funds reserved for hundreds of positions often left vacant by state agencies and departments.

“The welfare state that’s been created is unsustainable,” he said.

But Rep. Maria Horn, a Salisbury Democrat and co-chairwoman of the Finance, Revenue and Bonding Committee, said her party wants to deliver more relief, preserve key services and maintain healthy-but-possibly-smaller budget surpluses.

That doesn’t mean Connecticut has to raise taxes on some to finance relief for others next year, she said. But it also means that option can’t be quickly dismissed as it was when the state was awash in billions of dollars in federal pandemic grants.

Neighboring Massachusetts, Rhode Island, Maine, New York and New Jersey have met their obligations by boosting state income tax rates on top earners in recent years.

Meanwhile, Connecticut’s own tax fairness studies have shown the combined state and municipal tax systems have disproportionately burdened the poor and middle class.

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 by the Department of Revenue Services. The middle three deciles lost 16% to 20%, and the highest-earning decile lost just 10.6%.

“I think it’s time for us to take a hard look at the context in which we live,” Horn said, adding there’s “a deep sense of unfairness” among the middle-class voters she’s spoken with this fall.

Note: The Connecticut Project is a funder of The Connecticut Mirror.