State tops in federal tax imbalance
Leads country in getting the least back
HARTFORD – Connecticut is ranked first in the nation for paying the most in federal income taxes and getting the least federal dollars in return.
That’s the finding of the latest survey by the New York-based Rockefeller Institute of Government.
Connecticut leads all states because it receives only 74 cents back for every dollar that residents pay in federal taxes. As one of only 10 states that pays more in federal taxes than it receives, Connecticut is known as a so-called “donor state’’ that essentially helps other states that receive more than they send to Washington, D.C. The state receives relatively little money back from the federal government in public education grants and Medicaid, among others, as Fairfield County millionaires and billionaires pay large amounts of federal taxes.
State officials now fear that the situation could get even worse because the 2017 federal tax law that was signed by President Donald Trump includes provisions for capping the deduction
for state and local taxes at $10,000 per couple - making many Connecticut residents pay even more in federal taxes in a tax increase largely on the rich.
“New federal tax changes will now worsen this disparity and likely have long-term consequences for states like Connecticut, impairing the ability of Connecticut state and local governments to afford essential investments in infrastructure, education and workforce training that are necessary to drive economic growth,’’ said Comptroller Kevin Lembo. “These federal tax changes raise basic questions of fairness for high-income states like Connecticut and fly in the face of the tax bill’s stated goals.”
Governors in Northeastern states like Connecticut, New York and New Jersey say the $10,000per-couple cap on deductions disproportionately affects homeowners in high-tax states. Many Fairfield County homeowners pay more than $10,000 annually in real estate taxes alone.
Although many Connecticut taxpayers do not itemize their federal deductions, the average state and local tax deduction overall in 2015 was $19,664, according to the legislature’s nonpartisan research office. Among those earning more than $1 million per year, the deductions are among the highest in the nation at nearly $330,000.
Connecticut taxpayers earning between $75,000 and $100,000 per year would pay additional taxes, on average, of only $19 per year under the Trump tax law, the research office said. But those earning more than $1 million per year would pay an additional $118,000 per year, boosting the overall average.
Connecticut was tied with New Jersey in 2015 for the secondhighest percentage of taxpayers claiming the deduction — at 41 percent of federal tax returns.
The “donor’’ states include Massachusetts, New Hampshire, Illinois, Colorado, Nebraska, North Dakota and Washington state. As a small state, Connecticut received the least bang for the buck on a per capita basis.
Lembo tweeted, “Dear Florida, Texas, Kentucky, Tennessee, Alabama, Ohio, the Carolinas, and 32 other states, you’re welcome. Love, Connecticut.’’