Fewer Connecticut households reported income of $1 million or more in 2016, according to newly released data from the Internal Revenue Service.
The number of tax filers with an adjusted gross income of $1 million or more fell to 10,990 in 2016, a 4% decline from the previous year, according to the IRS. The cumulative adjusted gross income this group reported also shrank to $36.11 billion over this time period, a 13% drop.
The new data comes as the state’s competitive gubernatorial race has centered on state income taxes. Republican Bob Stefanowski has campaigned on phasing out the state’s income tax, while Ned Lamont, the Democratic candidate, has said that the plan to eliminate state income taxes is unrealistic.
Republicans and conservative analysts have argued that Connecticut’s income tax increases in 2011 and 2015 prompted many of its wealthiest residents to flee the state. The state income tax produced $10.7 billion of revenue in the fiscal year that ended in June 2018 compared with $9 billion in the year-earlier period.
Some state fiscal policy experts, however, said the drop in 2016 may be explained by changes in federal tax laws. Connecticut’s richest residents may have deferred income in anticipation of tax changes under the Trump administration, said Kim Rueben, a senior fellow with the Tax Policy Center.
“I feel like I wouldn’t look at changes between 2015 and 2016 and say that’s evidence that people are responding to Connecticut’s taxes,” Ms. Rueben said. “I would probably say that people in Connecticut who earn a million or more are even more likely to have shifted money between two years.”
Jared Walczak, senior policy analyst at the right-leaning Tax Foundation, said, “It’s plausible that political circumstances led to a deferral of income” in 2016, leading to a decline in the number households reporting income of $1 million or more. But Mr. Walczak said some rich Connecticut residents may have reached a tipping point and concluded it is no longer reasonable to live there because of the income taxes.
The 10,990 Connecticut households that reported $1 million or more in income in 2016 is still higher than it was in 2010, when the figure was 9,030, according to the IRS.
The U.S. as a whole saw a dip in households that earned $1 million or more in 2016. There were 424,870 tax filers who reported adjusted gross income of $1 million or more in 2016, a 3% decrease from the previous year. In Florida, where there is no state income tax, the number dwindled to 28,420 during that same time frame, a 14% drop.
Michael Mazerov, senior fellow with the left-leaning Center on Budget and Policy Priorities, said it is highly unlikely Connecticut’s income-tax rates caused the number of millionaire tax filers in the state to decrease in 2016. Mr. Mazerov, who is skeptical of claims that the wealthy migrate out of state due to tax policy, pointed to a 2016 study by Stanford University and the U.S. Department of Treasury.
That study, which examined the migration habits of the wealthy throughout the U.S., concluded that “millionaire tax flight is occurring, but only at the margins of statistical and socioeconomic significance.”
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