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2 out of 3 Connecticut corporations pay very little in state income tax, report says

Ken Teegardin/flickr creative commons

Taxes were due on Monday for individuals and many corporations. But a new report from the Economic Policy Institute suggests many corporations in Connecticut may not be paying much at all.

According to the report, 69% of Connecticut corporations paid very little in state corporate income tax between 2016 and 2018. Connecticut had the third-highest share of corporations paying zero state corporate income tax among the seven states surveyed. Based on preliminary data, the report found that corporations in the state with over $1 billion in federal taxable income paid $4,000 on average.

The Connecticut Department of Revenue Services said the agency “is unable to speak to the article's referenced data without actually reviewing the data that was used in their article.”

Across the country, the report found that the effective state tax rate on corporate profits declined between 1989 and 2017.

Some of that is due to legal measures corporations take to minimize their tax bills, including becoming an S-corporation, which is exempt from many state corporate income taxes, or employing the tax code to reduce their tax liability despite large profits.

“This erosion in collections from corporate income tax is especially troubling because it’s the single largest source of revenue weakness at the state and local level, with corporations pulling less and less of the load in delivering revenue needed to provide viable public goods,” said Josh Bivens, director of research at the Economic Policy Institute.

Bivens said that nationally, cutting state corporate income taxes does not result in a trickle-down effect for workers. “The economic research on this is really clear,” he said. ”Corporate tax cuts do not raise wages for typical workers, but they do reliably boost incomes for households at the very top.”

The analysis showed that the decline in corporate tax revenues was not made up by raising taxes elsewhere; states simply collected less revenue.

Copyright 2022 Connecticut Public Radio. To see more, visit Connecticut Public Radio.

Ali Oshinskie is a corps member with Report for America, a national service program that places journalists into local newsrooms. Ali reports on the Naugatuck River Valley with an emphasis on work, economic development, and opportunity in the Valley. Her work has appeared on NPR, Marketplace, and The Hartford Courant.