April 2013

Reality Check: Who Pays Taxes in Connecticut?

Matthew Santacroce

This brief finds that Connecticut’s wealthiest residents pay a smaller share of their income in state and local taxes than middle-income and low-income residents. The report, which is based on analysis of federal, state, and local tax data by the Institute for Economic and Tax Policy, finds:

  • While the federal tax system is progressive, meaning that higher-income people pay a greater share of their income in taxes, Connecticut system is the opposite, asking the most of those with the least. In Connecticut’s regressive system, the wealthiest 1% of taxpayers pay about half the share of their income on state and local taxes (5.5%) that middle-income (10.5%) and lower-income (11%) residents pay.

  • Connecticut’s Earned Income Tax Credit, which went into effect in 2011, has helped to make Connecticut taxes less regressive and to offset the impact of recent sales tax increases, which hit lower-income residents harder. The credit benefited 180,000 Connecticut households last year and can be claimed by low- and moderate-income people who earn income through work. Governor Malloy has proposed scaling back the credit in his budget plan.

  • While rich people in the U.S. pay a higher dollar amount in taxes, it is because their incomes are so much higher than everyone else’s, not because they are taxed far more heavily. Nationally, the top 1% of income earners pay 21.6% of all federal, state, and local taxes, and capture a similar share of income -- 21%. Middle-income people earn 11.4% of income and pay 10.3% of total taxes, while the poorest 20% earn 3.4% of income and pay 2.1% of taxes. Therefore, each income group’s share of taxes reflects its share of national income.

Issue Area:
Budget and Tax