Taxation-State and Local | Tax Law
This article describes how Connecticut, despite catching a fiscal break from the pandemic, has failed to seize the opportunity to enact meaningful reform targeted at its $90 billion debt.
The article begins by explaining why Connecticut fared well during the pandemic. Many wealthy taxpayers moved into Connecticut from New York City. The increase in their stock-market driven income taxes, as well the sales tax boost from secondary and tertiary purchases by homebuyers, has eliminated Connecticut’s short-term budget deficit. The State is sitting on a $3 billion rainy-day fund.
Next, the article examines several tensions between the democratic governor, Ned Lamont, and the democratic-controlled Legislature. First, while some want to use the $3 billion fund for pandemic tax relief, Lamont wants to save it in case things become worse down the road. Second, there is the question of whether the Legislature will play a role in controlling the federal stimulus aid to Connecticut. Finally, though there are calls to increase taxes on the wealthy, Lamont has continued to signal a reluctance to do so.
The article then analyzes Connecticut policies which, in the shadow of massive debt, mostly fail to provide meaningful solutions.
Lamont recently signed the state’s seventh tax amnesty program since 1990. It is uncertain whether taxpayers will take the amnesty program seriously. One threat is that the state claims to be positioned for more efficient auditing in the future, which might encourage taxpayers to use the amnesty.
Lamont also seeks to expand and tax gambling in the state through negotiations with the Mashantucket Pequots and Mohegan tribal nations. Connecticut has also provided significant tax incentives to data centers, which Pomp argues is a waste of money: 11 data centers established themselves in the state before any such incentives were offered.
After failing to convince the Legislature to support a toll road plan, Lamont now plans to extract a highway usage fee on large trucks passing through the state. This, however, seems problematic under the Commerce Clause. Connecticut has also passed a bill that purports to protect taxpayers from double taxation now that states like Massachusetts have expanded their nexus requirements in response to the increase in nonresident remote workers. But the bill does not appear to have any significance by adopting a credit when one already exists as a practical matter. Lastly, Connecticut’s tax on digital advertising is based on a Maryland law which is likely to be struck down.
Pomp, Richard, "Responding to the Pandemic: A Case Study" (2021). Faculty Articles and Papers. 561.