The revenue package recently passed by the General Assembly and signed by the Governor on May 4, 2011 (the “Budget Bill”) is the largest in recent history in absolute dollars, though it is smaller as a share of the state budget than the revenue increases of the early 1990s (when Connecticut first adopted a broad-based personal income tax). Further, an increase in revenues was necessary to end Connecticut’s legacy of “smoke and mirrors” budget practices, including the state’s extraordinary reliance on one-time revenues for ongoing expenses.
Under the Governor’s February proposal, middle-income residents would have borne the heaviest increase as a portion of their income, largely because of his proposal to eliminate the $500 property tax credit. The Governor and members of the General Assembly, working together, improved this proposal in ways that reduce the tax impact on lower and middle income residents. Compared to the Governor’s plan, the Budget Bill raises the average tax increase for the top 5% of income earners by roughly one fifth of one percent of their income (0.2%) while reducing the tax increase for the “bottom” 80% of taxpayers. The final result is a more progressive proposal whose impact on taxes more uniformly rises with higher incomes. However, it is important to note that while these changes will make Connecticut’s overall state and local tax system slightly less regressive, middle- and lower-income Connecticut taxpayers will still pay a higher share of their income in state and local taxes than those who are wealthy.
Changes in the Budget Bill in the sales and corporate income taxes were more mixed, with some positive revisions (such as the so called “Amazon tax” to capture sales tax on some Internet sales) being replaced with negative changes (such as the elimination of the Throwback rule for the corporation business tax that would help level the playing field between large corporations and small businesses in Connecticut).
This brief compares the revenue changes adopted in the May Budget Bill to the Governor’s February revenue proposals.