William McEachern

English

Research Papers in Economics

Some State Income
Tax Snapshots 
Each spring we report on the most
recent Connecticut income tax returns.
We do this not because the income tax is
so significant in itself, though it grows
more important each year (see page 5),
but because reliable income data, particu-
larly town level data, are hard to come by
in Connecticut.  Unlike employment num-
bers, which are mere estimates (and 
especially crude ones at the town level),
income tax figures come from the 1.3 
million returns filed by state residents
each year.  These data provide reliable
snapshots of economic activity across
towns and over time.  Let’s view the final
tallies for 1997. 
State Income Taxes in 1997
Fueled by a bull market that would not
quit and a state economy in its fifth year
of expansion, state income tax revenue
roared ahead in 1997.  The number of
returns from year-round residents
increased by 3.0%, and adjusted gross
income (AGI) jumped by 13.5%.  Despite
tax rate cuts and expanded tax credits,
income tax receipts still climbed 11.0% in
1997, the fastest growth so far.
The median AGI for the 1.28 million
Connecticut filers was about $40,000, up
from $38,000 in 1996.  The half of filers
who reported an AGI below the median
paid an average of $230 in Connecticut
income taxes, or $4.43 per week, a drop
of one-fifth from the previous year.  Their
state income tax in 1997 averaged 1.1%
of their AGI, down from 1.3% in 1996.
Taxes paid by the bottom half fell because
the new, lower, tax rate of 3.0% was
applied to a broader range of taxable
income and because the property tax
credit increased.  
The half of filers reporting an AGI
above the median paid an average of
$3,540 in Connecticut income taxes, or
about $68 per week.  Their state income
tax amounted to 3.2% of their AGI.  Filers
above the median AGI contributed 94.2%
of the $2.6 billion collected from
Connecticut filers in 1997.  This was up
slightly from the 93.9% share for 1996
and 92.4% in 1995.  Put another way,
those below the median contributed only
5.8% of the total in 1997, down slightly
from 6.1% in 1996 and 7.6% in 1995.  
Filers with an AGI of at least $100,000
accounted for only 11.8% of all returns,
but contributed 60.2% of all state income
taxes in 1997, up from 53.3% of the total
in 1996.  Finally, the 1% of all filers
reporting an AGI in excess of $500,000
paid 26.7% of all state income taxes in
1997, up from 20.6% in 1996. 
Property Tax Credit Expanded
The share paid by low income filers
declined because of (1) a cut in the tax
rate from 4.5% to 3.0% at low income
levels and (2) the credit offered for prop-
erty taxes against income tax liability.
That credit increased to $215 for the 1997
tax year.  The accompanying bar chart
shows the average tax credit taken on
1997 returns based on adjusted gross
income.  For example, the bottom bracket,
those with an AGI between $0 and
$20,000, had an average property tax
credit of $39.  That doesn’t seem like
much, but it cut the average 1997 income
tax liability in that group from $50 to $11,
or by 78%. This bottom group’s pre-credit
income tax liability was too low to take full
advantage of the credit, thus, explaining
why the property tax credit is not higher.
The bar chart shows that the property tax
credit increased with AGI, peaking at $194
for filers with an AGI between $75,000 and
$100,000.  The value of the credit declined
after that because the state denies high
income filers all but $100 of the credit. 
The lower tax rate of 3.0% and the
higher property tax credit erased the
income tax for about 143 thousand low-
income filers in 1997 who would have
otherwise paid state income taxes.  The
property tax credit increased to $350 in
1998 and will probably jump again for
1999.  Also the taxable income subject to
a 3.0% instead of 4.5% rate rises this
year as well.  All of this means that more
lower-income Connecticut filers will pay
no income tax and high income filers will
pay an even greater share of the total. 
Although higher-income filers pay the
overwhelming share of Connecticut’s
income tax burden, a share that increased
in recent years, our April poll of 500
Connecticut residents indicates that sup-
port for the tax is weaker at low income
levels than at high income levels.  Go fig-
ure. (For details, see page 5 and page 8).
Rich Towns, Poor Towns
Our centerfold (pages 10-11) reports
Connecticut income taxes by town for
1997, the most recent year available.  The
state’s five poorest towns, in terms of
average tax payments per return in 1997,
were Hartford, Bridgeport, Thompson,
Sterling, and Killingly.  Four of the five also
ranked among the bottom five in 1992, the
first full year of the income tax.  Bridgeport,
the exception, ranked sixth in 1992.  
The top five towns in income taxes
paid per return in 1997 were New
Canaan, Greenwich, Darien, Weston, and
Westport.  These wealthy towns also
topped the list in 1992.  In fact, New
Canaan has been number one every year
since the tax was introduced; its average
climbed 18.6% between 1996 and 1997. 
Thus the town rankings have been
remarkably stable during the 1990s, at
least at the extremes of the distribution.
But the lead of the top towns has grown.
In 1992 income tax payments by filers
from the top five towns averaged 6.7
times those made by filers in the bottom
five towns.  An increase in AGI at the top
combined with tax cuts at the lower end
of the distribution stretched this multiple
to 11.1 by 1997. 
Geography plays an obvious roll in the
average tax liability by town.  The five
towns with the largest average tax liability
are in the southwest corner of the state;
the five towns with the lowest average lia-
bility divide between the two largest cen-
tral cities and three towns bordering
Rhode Island. 
18 The Connecticut Economy Spring 1999
WILL MCEACHERN’S STRAWS IN THE WIND
Source: Developed by The Connecticut
Economy based on figures form the
Connecticut Department of Revenue
Services
Average Property
Tax Credit on 1997
Connecticut Income
Tax Returns Based
on Adjusted Gross
Income
Filers’ Adjusted Gross IncomeDon't Forget to Visit Us On The Internet  -  http://www.lib.uconn.edu/ccea/quarterly.htm
Tax History By Town
Consider the brief history of the income
tax in Connecticut.  The average tax per
return declined in ten towns between
1992 and 1997: Bridgeport (-10.5%),
Hartford (-9.8%), New London (-9.2%),
Union (-6.6%), East Hartford (-4.3%),
Sprague (-1.5%), Brooklyn (-1.4%),
Waterbury (-1.4%), Windham (-1.4%),
and New Haven (-1.3%).  Half are trou-
bled central cities; the rest are East of the
River.  Three towns in the state saw a
decline in the number of income tax filers
between 1992 and 1997: Stafford (-5.0%),
Vernon (-3.9%), and Hartford (-1.8).  All
three are in the Hartford labor market area.
The ten fastest growing towns in aver-
age tax payments per return between
1992 and 1997 were Greenwich (104.2%),
Colebrook  (86.9%), Darien (83.0%),
Sharon (82.8%), Warren (78.2%), Weston
(64.5%), Ridgefield (61.2%), New
Canaan (59.5%), Washington (55.3%),
and Wilton (55.1%).  All these super-
achievers either border New York State or
lie within 15 miles of that border. 
Here’s one final point to consider: filers
from the fastest growing town,
Greenwich, collectively paid $223.6 mil-
lion in state income taxes in 1997.  This
exceeded the total paid by all residents of
Bridgeport, Bristol, East Hartford,
Hartford, Meriden, New Britain, New
London, New Haven, Norwich, and
Waterbury put together.  Greenwich had
25,200 filers and the other towns had a
total of 250,500 filers
Economy 
THE CONNECTICUT
A University of Connecticut Quarterly Review
Connecticut Travel
and Tourism Index
The overall index decreased
2.1% in the first quarter com-
pared to the same quarter the
year before.  The index consists
of hotel-motel revenues, hotel-
motel occupancy rates, atten-
dance at six major tourist
attractions, and traffic on five
tourist roads.
Hotel/Motel Rev. H 11.6%
Occupancy Rate H 0.9%
Attendance P-18.8%
Traffic P -2.1%
Overall P -2.1%
Job Totals
(not seasonally adjusted)
Electricity
Usage
(not seasonally adjusted)
Housing
Sales
(seasonally adjusted)
Initial
Unemployment
Claims
(seasonally adjusted)
Indexed so 1990 = 100
INDEX OF ECONOMIC INDICATORS

Some State Income Tax Snapshots

http://cteconomy.uconn.edu/articles/WMb_Sp1999.pdf

Some State Income Tax Snapshots

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Research Papers in Economics