Connecticut Payroll Tax Proposal Raises Difficult Questions

With less than a month remaining in the legislative session, some Connecticut lawmakers want to go bold, eliminating the income tax for many taxpayers and replacing it with a new payroll tax. And while it has the support of some key legislators, many important details have yet to be worked out. The proposal seems straightforward enough at first glance: the state’s graduated-rate income tax would be largely replaced by a 5 percent payroll tax, plus an additional 2 percent tax on income above $200,000, which would raise more money than the current income tax. The state’s Earned Income Tax Credit (EITC) would be increased to offset the higher tax liability for low-income earners, and because the payroll tax is a deductible expense for businesses, taxpayers subject to the $10,000 state and local tax (SALT) deduction cap would get a federal tax cut even as the state generates more money. It’s an intriguing idea, but also a potentially very complex one. As they…

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