The state legislature’s tax and spending committees this week approved a two-year, $55.8 billion budget plan that hikes taxes by almost $1 billion and weakens the 2017 fiscal reforms.
Two Democrats—Rep. Jill Barry (D-Glastonbury) and Rep. Kerry Wood (D-Rocky Hill)—joined all Republicans in opposing the tax package adopted by the Finance, Revenue, and Bonding Committee April 23.
The previous day, the Appropriations Committee—on a party line vote—passed a budget that exceeds the state’s constitutional spending cap while boosting spending by 4% in fiscal 2026 and 5% the following year.
The Finance Committee adjusted the volatility cap to capture an additional $1 billion and create a new $700 million “supplemental budget reserve fund” to offset potential federal funding cuts and fund a $300 million early childhood endowment.
The Appropriations Committee plan exceeds the spending cap by $215 million, further undermining the fiscal discipline that has been instrumental to Connecticut’s improved fiscal fortunes and economic climate.
Planned two-year spending is approximately $600 million more than Gov. Ned Lamont proposed in the budget plan he released earlier this year.
Tax Hikes
As Lamont did, the Finance Committee eliminated the cap on unitary tax reporting—hiking taxes on employers by $133.1 million in fiscal year 2026 and $83.2 million the following year.
The committee matched Lamont’s proposal to extend the “temporary” corporate tax surcharge—now marking 20 years in existence—that will cost employers another $128 million over two years.
Lawmakers also approved adjustments to the state’s film tax credit and eliminated certain net operating loss allowances, further raising taxes on employers.
The committee voted 27-21 on an amendment that adds a 1.75% surcharge on capital gains earnings for individuals earning over $1 million and for couples earning more than $2 million, with a one-time exemption for gains from a sale of a primary residence or business.
The Finance Committee approved a 1.75% surcharge on capital gains earnings.
Four Democrats—Barry, Rep. Savet Constantine (D-Wilton), Rep. MD Rahman (D-Manchester), and Wood—joined all committee Republicans to vote against the capital gains tax hike.
The surcharge would sunset in four years. Estimates were not available on the limited exemptions, but the total cost to taxpayers was an estimated $285 million a year without those exemptions.
The committee attempted to offset about $100 million a year in tax increases by:
- Creating a new child tax credit for families making less than $200,000 annually
- Expanding the research and development tax credit for bioscience companies
- A new tax credit for corporate contributions to student athletes name, image, and likeness agreements
- A new farm investment tax credit
- Relief for home childcare providers
- A new tax credit for employer contributions to employee CHET accounts
‘Unnecessary’
CBIA president and CEO Chris DiPentima called the tax increases “completely unnecessary,” saying the budget plan “threatens the economic growth Connecticut has seen since adopting the fiscal guardrails.”
“We do not need to raise taxes right now, yet lawmakers are choosing to do so—it’s a self-inflicted wound with significant negative consequences,” he said.
“If the intention behind the tax hikes and weakening the fiscal guardrails is to offset potential federal funding cuts, then we have a rainy day fund—a healthy one—that’s designed for that type of challenge.”
DiPentima added that “there are more effective, viable, and sustainable solutions available for funding worthwhile initiatives such as childcare investments.”
“There are more effective, viable, and sustainable solutions available for funding worthwhile initiatives.”
CBIA’s Chris DiPentima
He noted that policymakers have an existing, taxpayer-friendly blueprint for freeing up additional revenue, with the 2021 CREATES Report identifying between$600 million and $900 million in annual savings.
“Why does it always have to be about raising taxes and budget workarounds?” he asked.
Chris Davis, CBIA’s vice president of public policy, warned that dismantling the fiscal guardrails “has long-term consequences.”
“The proposed volatility cap adjustments and creation of additional off-budget accounts that further disregard the state spending cap set up additional tax increases for years to come,” he said.
“Rather than passing proposals that will increase costs and reduce economic growth, policymakers must pursue policies that make Connecticut more affordable.”
‘Always a Tax’
Finance Committee co-chair Rep. Maria Horn (D-Salisbury) defended the budget plan, saying “we shouldn’t sit here and pretend that we’re living in ordinary times.”
“We are looking at more significant cuts ahead,” she said.
A group of moderate House Democrats known as the Blue Dogs released a statement before this week’s budget votes urging fiscal responsibility.
“We share the concerns raised about looming federal spending cuts and the pressure they could put on working and middle-class families,” the group, which is chaired by Wood and Rep. Pat Boyd (D-Pomfret), said in the statement.
Senate Democrat leaders want to increase the state income tax rate 8.7% for single filers earning between $250,000 and $500,000, and by 14.3% for married couples earning between $500,000 and $1 million. #taxes https://t.co/GS0O5oTfPr
— CBIA (@CBIANews) April 21, 2025
“But Connecticut is not served by reactionary policy. Now is not the time to raise taxes. We need thoughtful, measured action, not quick fixes that threaten our progress and potentially drive our largest taxpayers out of the state.”
Finance Committee ranking member Rep. Joe Polletta (R-Watertown) questioned the need to hike taxes.
“It’s always a tax,” he said.“What if we look at some reductions?”
His Senate counterpart, Sen. Ryan Fazio (R-Greenwich), noted that “Connecticut is one of the highest-taxed states in the country.”
“The people of this state have had enough tax increases,” he said. “We don’t need more revenue. We don’t need more taxes. We need more taxpayers.”
Fiscal Discipline
While Lamont’s proposed budget recommended aone-time weakening of the state’s volatility cap to fund the childcare endowment, the governor has repeatedly warned against adjusting the spending cap, which he calls “sacrosanct.”
Following the Finance Committee vote, the governor’s communications chief, Rob Blanchard, said Connecticut’s new-found fiscal discipline has built a record-breaking rainy day fund to cover emergencies.
“Over the last several years, Connecticut has managed to turn its fiscal house around, while cutting taxes for working families and the middle class,” he said.
The governor has repeatedly warned against adjusting the spending cap, which he calls “sacrosanct.”
“However, increasing taxes won’t help our state grow, which is also a priority for the governor.
“While it’s early in the process, we look forward to working together to pass an honest budget that reflects the needs of our state today and builds a better tomorrow.”
Budget negotiations now move behind closed doors, as legislative leaders and the governor continue discussions on a tax and spending package for the next two fiscal years.
The legislative session adjourns June 4.
For more information, contact CBIA’s CBIA’sChris Davis(860.244.1931) or Jenna Grasso(860.244.1169).
