Across the country, a growing number of Democratic-led states are exploring wealth taxes or similar policies aimed at their highest earners.
While the proposals vary, the main objective is to raise additional revenue from very high-earning households, often framed as a response to income inequality.
A recent CNBC report underscored this renewed interest, highlighting California’s high-profile Billionaire Tax Act, a ballot measure likely headed to voters in November. The proposal would impose a one-time 5% tax on the total net worth of California residents worth $1 billion or more.
The measure would be the first of its kind in the U.S. because it targets accumulated wealth rather than income, according to CNBC. Bloomberg recently reported that the proposal has prompted some well-off Californians to scour South Florida for luxury homes.
Other states, including Rhode Island, Washington and Virginia, have pursued or debated measures aimed at raising more revenue from high earners through taxes on capital gains, investment income or high-income households.
Connecticut is not removed from this conversation.
Progressive Democratic lawmakers here have proposed a series of bills this session aimed at increasing taxes on the state’s highest earners — including a capital gains surcharge, a one-percentage-point increase in the top 6.99% marginal income tax rate, and a new surtax on income above $1 million.
While these proposals stop short of a formal wealth tax, they reflect a similar policy impulse — and carry many of the same economic risks.
Connecticut’s tax system depends heavily on a small group of high-income taxpayers, making policies that target them especially consequential. For that reason, the state should resist the temptation to follow this path.
Who pays the most?
A 2024 Connecticut Department of Revenue Services Tax Incidence study shows just how concentrated the state’s income tax base already is. In tax year 2020, the top 5% of filers — roughly 71,000 taxpayers — accounted for 57% of personal income tax collections after tax credits were applied.
The concentration becomes even more pronounced within that group. The top 0.5% of filers, just 8,869 taxpayers, paid more than $3.28 billion — nearly one-third of the roughly $10.2 billion collected statewide.
When so much revenue depends on such a limited pool of taxpayers, even modest behavioral shifts can have outsized consequences. A relocation, a residency change or simply different timing of investment activity can ripple through state finances.
Supporters of higher taxes on wealthy residents often argue that concerns about taxpayer flight are overstated, and studies offer evidence for both sides. Connecticut’s demographic trends, however, leave little margin for complacency.
And in a recent interview with the HBJ, Department of Revenue Services Commissioner Mark Boughton said his agency is preparing to publish an updated Tax Incidence study that will show high-income taxpayers are leaving Connecticut.
That’s no surprise. The state has faced persistent outmigration pressures for years, with population growth largely dependent on international migration. For Connecticut, taxpayer mobility carries clear fiscal risks.
Importantly, this discussion is unfolding at a time when Connecticut is not facing an immediate fiscal crisis.
The state has recorded repeated surpluses in recent years and built a historically strong rainy day fund. While long-term budget pressures remain, the absence of an urgent revenue emergency weakens the case for tax hikes.
Connecticut’s broader economic landscape makes that caution even more relevant. Housing costs, energy prices and existing tax burdens already play a central role in how residents and businesses evaluate where to live, work and invest.
Many of Connecticut’s wealthiest residents have deep roots here. Others, however, maintain homes in different states or even countries, and have the flexibility to establish residency elsewhere — particularly retirees, investors and certain business owners whose income is not tied to a specific location.
The question is not whether these taxpayers can afford to pay more. It’s whether Connecticut gains anything by increasing the incentive — or even the perception — that leaving might make financial sense.
None of this dismisses legitimate concerns about tax fairness. The Department of Revenue Services study points to real structural questions, particularly Connecticut’s heavy reliance on property taxes — an issue well worth debating.
But adding new taxes on investment income or increasing top marginal rates are policy choices that directly affect competitiveness and taxpayer behavior.
Gov. Ned Lamont has repeatedly argued that the state should focus on growing its taxpayer base rather than raising rates.
He is advocating the more pragmatic path. As other blue states move toward wealth taxes or wealth-tax-like policies, Connecticut should take a different approach.
