Increase in Tax Revenues Reduces But Doesn’t Erase Deficits
HARTFORD, CT — Three of Connecticut’s largest tax categories saw growth between November and January, which means revenues are expected to come in $464.3 million higher than expected. That’s after $648 million is transferred to the Rainy Day Fund under the volatility cap.
The Office of Fiscal Analysis and the Office of Policy and Management said personal income taxes, sales and use taxes, and the corporation tax are running ahead of estimates.
Receipts from the personal income tax increased $75 million since the Nov. 10, 2018, revenue forecast. All of that portion of the increase can be attributed to the withholding portion of the personal income tax, which comes from people who are employed by a company and receive a W-2. The estimates and finals portion of the personal income tax is paid by business owners, the self-employed, or those with investment income and it was not adjusted this month.
“We surmise that taxpayer behavior in response to the federal SALT deduction cap may be delaying payments until January 15th rather than December 31st,” the Office of Fiscal Analysis said in a statement. “We expect to have a complete picture of fourth quarter estimated payments in late January and we will provide updates as necessary.”
Office of Policy and Management Secretary Melissa McCaw said she’s taking a cautious approach to the revenue numbers, which will help guide the creation of Gov. Ned Lamont’s first budget proposal in mid-February.
“The first half of this fiscal year has included strong performance from our major revenue sources — leading to budget surplus projections with an expected and much-needed deposit to the Budget Reserve Fund — and that strength is reflected in the Consensus Revenue estimates we are releasing today,” McCaw said Tuesday. “Nevertheless, we are continuing to watch recent signals in the economy, such as volatility in the markets or taxpayer behavior in response to federal changes, that could impact our subsequent revenue forecasts.”
Senate Republican leader Len Fasano, R-North Haven, also expressed cautious optimism over the revenue estimates, which are made three times a year in January, April, and November.
“There are two major reasons we must remain careful: 1) part of this bump in revenue may include double payments as a result of changes made to the pass through entity tax, which will result in increased refunds to many individuals later this year; and 2) every economist is predicting a recession is right around the corner. We have to prepare for the expected downturn now and ready ourselves for even greater challenges on the horizon to avoid the same long-term devastation we saw during the last recession,” Fasano said.
Fasano said the bipartisan budget is helping turn around Connecticut’s fiscal situation.
“The responsible financial policies we passed with bipartisan support over the last two years are starting to build confidence back in our state,” Fasano said. “These bipartisan efforts were only the beginning of what we can do when we work together and consider ideas from both sides of the aisle. Today’s projections emphasize that Connecticut needs to remain focused.”
Tuesday’s revenue estimates reduce the deficit for fiscal year 2020 to $1.5 billion and the deficit for fiscal year 2021 to $2 billion.