The few hundred wealthy families who pay an outsized share of Connecticut’s tax burden are having a big effect on Connecticut’s budget deficit.
According to projections by the Office of Fiscal Analysis, the state’s take from top taxpayers is going down, although the causes of the decrease remain uncertain.
The OFA reported that the top 100 income tax filers in Connecticut have accounted for almost all of a $30 million decline in projected 2017 income tax revenue. The top 100 filers are the Connecticut families who pay the most in income taxes.
The report highlights just how precarious Connecticut fiscal position is in 2017 and its dependence on the top earners living in the state.
A 2014 study by the Connecticut Department of Revenue Services found that 357 families account for 11.7 percent of the total Connecticut income tax burden.
Those 357 families paid $682.5 million in income tax in 2014, so minor fluctuations in the number of high wealth families and their income levels can have big consequences for balancing the budget.
The OFA speculates that these top 100 filers could be using “safe harbor” provisions in the tax code “which may be masking underlying strength for those filers.”
Safe harbor allows high income individuals to avoid the risk of an underpayment penalty in case their returns were not calculated properly. To avoid penalty they pay either 90 percent of their current bill or 110 percent their previous year’s bill.
The other possibility is that top earners have been leaving the state, causing the revenue from the top 100 tax filers to decline.
Connecticut faces an outmigration trend in which higher-earning individuals are leaving the state, with Florida being one of the primary beneficiaries.
According to IRS data, from 2011 to 2012 4,560 Connecticut residents moved to Florida, taking with them $1.3 billion in income, an average of $285,000 per person.
Florida, with no income tax, has been attracting wealthier individuals as Connecticut passed two of its largest tax increases in history in 2011 and 2015. Notably, Florida has siphoned off some of Connecticut’s wealthiest people.
In 2015, hedge fund manager Paul Tudor Jones moved from Greenwich to Florida, taking with him nearly $30 million in income tax revenue.
Connecticut’s economy has long been bolstered by the financial sector and is home to many hedge funds and investment companies. It also is home to a large number of millionaires. Connecticut ranked 2nd in the nation for the number of millionaire residents per capita – 7.4 percent.
Those high income individuals and families, however, can have an unsettling influence over Connecticut’s income tax revenue if and when they choose to relocate.
Overall the OFA projects a 9 percent decrease in income tax revenue, raising the projected general fund deficit to $65.2 million.
The nonpartisan OFA’s estimates differed significantly from the governor’s Office of Policy and Management which continues to estimate a surplus of $22 million.
