Why It Matters
Connecticut’s highest income tax rate of 6.99% is substantially lower than those of New York, New Jersey, and Massachusetts, raising questions about whether the state is capturing sufficient revenue from top earners compared to its regional competitors at a time when neighboring states have boosted rates to fund education and social services.
What Happened
Connecticut maintains a seven-bracket income tax system with rates ranging from 2% to 6.99%, with most middle-class households paying between 4.5% and 6%. Meanwhile, neighboring states have moved in a different direction. New York’s top rate reaches 10.9%, though that elevated rate is set to expire next year and revert to 8.8%. New Jersey’s graduated structure climbs to 10.75% at the top bracket, starting from 1.4% for lower earners.
In recent years, several nearby states have raised rates on top earners. New York and New Jersey both increased their top marginal income tax rates in the pandemic era. Maine and Rhode Island enacted higher top rates this spring, with Rhode Island specifically using the increase to fund tax relief for middle-class households with children.
Massachusetts took a different approach four years ago when voters approved a surcharge on top earners dedicated to education and transportation funding. That surcharge has generated three times the revenue originally projected, demonstrating stronger-than-expected receipts from high-income taxpayers.
A Connecticut state representative flagged the gap. “I think it’s time for us to take a hard look at the context in which we live,” said Rep. Maria Horn, signaling potential legislative interest in revisiting the state’s tax structure.
By the Numbers
2% — Connecticut’s lowest income tax rate
6.99% — Connecticut’s highest income tax rate
10.75% — New Jersey’s top income tax rate
10.9% — New York’s current top income tax rate (set to drop to 8.8% next year)
3x — multiple of projected revenue from Massachusetts’s four-year-old surcharge on top earners
Zoom Out
The divergence reflects a broader regional strategy. As states face budget pressures and demand for services, several Northeastern jurisdictions have decided that raising rates on the highest earners provides sustainable revenue without heavily impacting middle-class households. Massachusetts’s experience with its surcharge suggests that wealthy residents may continue to pay significantly higher taxes even when rates rise, contradicting concerns about revenue flight from rate increases.
Connecticut’s position is complicated by its proximity to lower-tax states and its reliance on income from commuters and out-of-state workers. However, the state’s regional neighbors—all facing similar economic and demographic pressures—have concluded that higher top rates are both politically viable and fiscally productive.
What’s Next
Connecticut lawmakers will likely face continued pressure to assess the state’s competitiveness in regional tax policy. Any legislative push to raise the top rate would require navigating questions about revenue adequacy, economic impact, and whether funds would be directed to specific priorities as Massachusetts did with its surcharge. The state’s budget pressures and demands for education and infrastructure funding may force the issue in coming legislative sessions.