The Department of Economic and Community Development offers loans, grants and business tax credits to qualifying businesses under a variety of program intended to boost economic activity and jobs in the state. But according to the most recent audit of the department’s 2018 and 2019 annual report, measuring the effectiveness ...
Fiscal Focus – Connecticut’s Tax Burden: An Overview
May 3, 2005
ALL TAXES: THE HIGHEST BURDEN IN THE NATION
Connecticut’s residents bear an incredibly high burden of taxation at the local, state, and federal levels. As a share of personal income, the total tax bite in Connecticut in 2005 is 33.5 percent. This burden makes Connecticut the most heavily taxed state in the nation.1
In 2005, Connecticut’s “Tax Freedom Day”—the date at which residents stop working for the public sector and start earning money they can keep for themselves— falls on May 3.2
FEDERAL TAXES: A RETURN OF 65¢ ON THE DOLLAR
Connecticut receives a very poor return on the tax dollars it sends to Washington, D.C. According to the Edward J. Bloustein School of Planning and Public Policy at Rutgers University, only 65¢ comes back to the state in spending for every dollar that residents send to the federal treasury. Only one state, New Jersey, fares worse.3
According to research by the Tax Foundation, Connecticut’s return on its federal tax obligation has actually declined in recent years.4
Apparently, Governor Rell’s budget director is satisfied with this arrangement. “We send a lot more money to Washington than we get back … and that’s how it ought to be,” Robert Genuario recently told The Advocate.5
STATE TAXES: FROM $0 TO $4 BILLION—AND THAT’S JUST THE INCOME TAX
Connecticut’s income tax, which did not exist 14 years ago, now extracts over $4 billion each year from Nutmeg State residents.6
The state’s income tax almost certainly contributed to Connecticut’s sluggish economy in the 1990s. In that decade, the Nutmeg State ranked 47th in population growth, 41st in inflation-adjusted income growth, and 50th in job creation.7
At 6 percent, Connecticut’s sales tax is more burdensome, as a percentage of personal income, than the national average.8
Connecticut’s corporate tax is 7.5 percent, the national average.9 Yet it generates only 4 percent of all state revenue. According to the Cato Institute’s Chris Edwards, “State corporate income taxes might be the most inefficient taxes in the nation, because they create large burdens on businesses but raise little revenue.”10
Drivers in the Nutmeg State pay a gasoline tax of 25¢ per gallon, but Connecticut’s gross receipts tax, which usually is assessed by a wholesale oil company, adds an estimated 10¢ per gallon to the total cost.11
Connecticut’s taxes on beer, wine, and distilled spirits are generally higher than those in other states.12
At $1.51 per pack, Connecticut’s cigarette tax is among the highest in the nation.13
LOCAL TAXES: ONE OF THE HIGHEST PROPERTY-TAX BURDENS
Connecticut’s citizens “work longer to pay their local property tax than any other state tax; and longer than local property taxpayers in all other states but four.”14 Property taxes consume over one third of a taxpayer’s combined state-local tax burden.15
There are now over 50 local taxpayer organizations in Connecticut.16 These groups are growing increasingly influential. In 2004, for the first time ever, a majority of town budgets that went to referendum were defeated.17
1. Comparative state data can be found at www.taxfoundation.org/statelocal.html. 2. Tax Freedom Day data can be found at www.taxfoundation.org/taxfreedomday.html. 3. Pam Dawkins, “State plays cash cow for federal government, gets little back,” The Connecticut Post, October 28, 2004. 4. Federal taxation/spending ratios can be found at www.taxfoundation.org/taxingspending.html. 5. Tobin A. Coleman, “Legislative panel backs Genuario for budget post,” The Advocate, January 19, 2005. 6. D. Dowd Muska, “State’s overlooked tax burden,” The Connecticut Post, September 5, 2004. 7. Steve Moore, “States Can’t Tax Their Way Back To Prosperity: Lessons Learned from the 1990-91 Recession,” American Legislative Exchange Council, October 2002. 8. “Economic Report of the Governor,” February 4, 2004. 9. Ibid. 10. Chris Edwards, “Golden Opportunity for Every State,” Investor’s Business Daily, January 27, 2004. 11. Estimate by the Independent Connecticut Petroleum Association, www.icpa.org. 12. “Economic Report of the Governor,” February 4, 2004. 13. Ibid. 14. Connecticut Conference of Municipalities press release, May 29, 2002. 15. Don Klepper-Smith, “Connecticut’s Current State-Local Tax System: A Comparative Analysis,” September 27, 2002. 16. Yankee Institute estimate. 17. Federation of Connecticut Taxpayer Organizations estimate.
The Tax Foundation released its annual ranking of states based on their overall business tax climate and placed Connecticut 47th in the country, besting both New York and New Jersey but falling short of other Northeastern neighbors. The rankings were based on personal income, sales, corporate, property and unemployment insurance ...