Minority Republicans in the state Senate unveiled a plan Tuesday to drive middle class households’ income tax burdens down as much as $600 by 2027 while also capping municipalities’ ability to boost annual property taxes at 2%.
But the plan, which Republicans insist ultimately would deliver at least $700 million in relief, relies heavily on one-time funds and on a two-year state employee wage freeze, components likely to draw opposition from Gov. Ned Lamont and from his fellow Democrats in the House and Senate majorities.
“I was sick and tired of seeing my parents’ friends leave because they couldn’t afford to live here in their retirement years,” said Senate Minority Leader Stephen Harding of Brookfield, recalling reasons why he first ran for the General Assembly, during a late-morning press conference in the Legislative Office Building. “I was sick and tired of seeing my friends leave with young families because they couldn’t afford to live here on young families’ budgets, and it’s about time that we make this state more affordable.”
The linchpin of the Republican plan involves reducing two of the rates within the state income tax.
Connecticut taxes most income using a blend of up to seven different rates. For example, a couple earning $110,000 annually would be charged 3% on the first $20,000 in adjusted gross income, 4.5% on the next $80,000 and 5.5% on the final $10,000 of AGI.
Senate Republicans want to reduce the 3% rate to 2% and the 4.5% rate to 4%, beginning with the 2026 income year. The prime beneficiaries would be low- and middle-income families, with some households gaining as much as $500 to $600 per year, the caucus estimates, by 2027.
The cost to the state — close to $600 million per year, Senate Republicans project — would be covered in several ways.
The GOP would impose a two-year wage freeze on state employees, expected to save about $130 million next fiscal year and closer to $280 million by 2026-27.
The plan also would tap a portion of the interest Connecticut has earned on the $2.8 billion in emergency federal pandemic grants it has been spending gradually since Congress passed the American Rescue Plan Act in 2021.
Legislators from both parties were frustrated last month to learn the Lamont administration had kept that interest — about $240 million accumulated through last fiscal year, with a final tally closer to $340 million expected before June 30 — outside of the General Fund in an off-budget account until last month.
The wage freeze savings, if achieved, would be ongoing. But the prospect of securing state employee union agreement in this area is slim.
The State Employees Bargaining Agent Coalition issued a statement shortly after the GOP press conference reminding lawmakers that unions approved concessions plans that included wage freezes and other savings in 2009, 2011 and 2017.
“State employees have a long and recent history of taking wage freezes and making other financial sacrifices in order to balance the budget and preserve our upside down tax structure,” coalition spokesman Drew Stoner said. “While the ultra-wealthy have hoarded record levels of income, mostly through capital gains, our public services have been underfunded and understaffed. We need true progressive revenue changes that cut at the heart of our state’s inequitable structure while investing in the programs and infrastructure that lift up our communities and create economic growth for all of our residents across income brackets.”
State employees don’t have the right to strike but can take wage agreements to arbitration. The legislature does have the right to set certain arbitration awards aside but rarely does so.
But Harding said if legislators are committed to provide tax relief to residents, they need to remember that state employees have enjoyed more generous raises recently than have many in the private sector.
Since 2021, most state employees have received a 2.5% general wage increase and a step hike that normally adds another 2 percentage points, bringing the overall annual raise to about 4.5%.
“If they realize that [history], they should have the courage to vote ‘no’” to an arbitration award, Harding said.
Unlike the savings from a potential wage freeze, the ARPA interest is one-time money. Most of Connecticut’s $2.8 billion allocation from Congress has now been spent and no longer is available to earn interest.
Senate Republicans believe legislators not only can maintain this income tax cut but expand it during the final years of the decade so that it’s worth closer to $1,000 per middle-class household.
Sen. Ryan Fazio, R-Greenwich, ranking Senate Republican on the Finance, Revenue and Bonding Committee, said the key involves an ongoing legislative review of the billions of dollars of sales, corporate and other tax breaks on the books.
As tax credits, exemptions and deductions are potentially eliminated, presumably because they no longer deliver the economic development benefit originally intended, the state would collect more revenue. Rather than spending this revenue on current or new programs, Fazio said, Connecticut should return it to low- and middle-income households.
“That should be simplified, and the monies from those savings should be used to deliver a middle-class income tax cut,” Fazio said.
Senate Republicans also said Connecticut should seek to scale back future borrowing for capital projects and use the savings in debt service also to bolster tax relief.
Senate President Pro Tem Martin M,. Looney, D-New Haven, said Republicans’ chief means to deliver tax relief is a “massive expansion of the sales tax.” In other words, the GOP would close sales tax exemptions and collect more tax receipts from the poor and middle class with one hand and then return those same dollars as an income tax cut with the other.
Looney added that Republicans “are desperate to try to shift the focus” from fears that Republican President Donald Trump will try to massively reduce federal aid to states later this year, which could create big gaps in state finances.
Lamont’s budget spokesman, Chris Collibee, did not address specific elements of the Senate GOP tax plan, saying only that the governor would include some tax relief proposals in the new biennial budget he will deliver Wednesday to the General Assembly.
That plan isn’t expect to include any major tax cuts, though Lamont is expected to renew an earlier proposal to cut occupational licensing fees.
Capping future property tax hikes
A second element of the GOP plan would bar cities and towns from increasing property tax rates by more than 2% annually unless 60% or more of a municipality’s chief legislative body agrees.
Senate Republicans could not say how much this might force municipalities to cut their budgets, particularly since annual inflation rates typically exceed 2%.
But Republicans said they would try to ease burdens somewhat on local governments by identifying and canceling unfunded mandates imposed by past legislatures on cities and towns.
Joe DeLong, executive director of the Connecticut Conference of Municipalities, said he welcomes a chance to talk with legislators about reducing property tax burdens.
But DeLong also said the primary driver of rising property taxes isn’t unfunded mandates.
Rather it’s a combined state and municipal tax system that over-relies on property taxes, which generate more revenue annually than does the state income tax, to fund K-12 education and other core services.
For example, DeLong noted that the state’s Education Cost Sharing grant, its chief program to fund K-12 education, would have had to provide towns with an extra $654 million since 2017 just to keep pace with inflation.
“You can’t cap property taxes unless you want to deeply fund education” at the state budget level, he added. “That has to be a part of the conversation.”
Other elements of the Senate GOP plan include:
- Reducing the payroll deduction that funds Connecticut’s Paid Family and Medical Leave program from 0.5% of earnings to 0.4%. Republicans noted the medical leave fund generated a $78 million surplus last fiscal year and holds more than $560 million in its reserves.
- Cutting occupational licensing fees to $100 across all agencies and reducing business filing fees.