January 2012

Taking Stock: Four Decades of State Revenues, Expenditures, and Deficits

Wade Gibson, J.D.

This overview of state budget trends contradicts some conventional views and concerns about taxes and spending in Connecticut.

  • During the last recession, Connecticut policymakers closed a larger share of the deficit through spending cuts and smaller share through revenue increases than during previous recessions. In response to the latest recession (Fiscal Years 2009 to 2013), Connecticut policymakers closed 37% of the state budget deficit through revenue increases, compared to 42% in the previous recession (Fiscal Years 2002 to 2003) and 44% during Fiscal Years 1989 to 1992.
  • State spending has remained stable over the last two decades, after an increase in the late 1980s and early 1990s. Spending as a share of personal income was about 2% lower in 2010 than in 1995.
  • Over the last 20 years, state revenues from corporation business taxes and sales taxes have fallen dramatically as a share of personal income. Corporation business taxes fell 73% and sales taxes 44% as a proportion of personal income between 1990 and 2010. This decline was brought about by corporate tax cuts, expanded loopholes, and tax avoidance by businesses. The decline of sales tax revenues was due to to a shift towards an economy based increasingly on services, which are usually not subject to sales taxes, rather than goods, which are taxed.
  • Although middle-income and low-income Connecticut residents pay a larger share of their income in state and local taxes than the wealthiest residents, the report finds that recent state tax reforms have improved the progressivity of the tax system. This change was due the passage of a state earned income tax credit (EITC) for working families and adoption of more progressive income tax rates for wealthier residents.
Issue Area:
Budget and Tax