Connecticut Weighs Capital Gains Surcharge on Wealthy Residents: A Fiscal Showdown in the Making

Connecticut is entering a high-stakes budget debate as state lawmakers consider imposing a 1.75% surcharge on capital gains for high-income residents — a move aimed at increasing tax fairness and boosting revenues for social programs. But the proposal is already sparking sharp divisions among Democrats and resistance from the governor’s office and GOP lawmakers.

As state budgets tighten and federal funding grows uncertain, this proposal reflects a broader national trend: states are looking to wealth taxes and surcharges to fund essential services without cutting programs or increasing broad-based taxes.

What the Surcharge Proposal Entails

Democratic legislative leaders have proposed a 1.75% surcharge on capital gains for:

• Individuals earning over $250,000

• Married couples earning over $500,000

  
  

This is in addition to the state’s existing income tax on capital gains, effectively increasing the rate on investment income for the top earners.

Projected Impact:

• Revenue boost of several hundred million dollars annually

• Funds targeted toward social spending, education, and closing projected budget gaps

  
  

Governor Lamont’s Opposition

Connecticut Governor Ned Lamont has voiced strong opposition to the plan, citing:

• Connecticut’s stable fiscal outlook and record Rainy Day fund balance

• Concerns that tax hikes could chase wealthy residents and capital out of the state

• A belief that current resources and spending restraint are sufficient

  
  

Lamont has positioned himself as a centrist focused on long-term fiscal health and is reportedly unwilling to sign any budget that includes new personal tax increases.

Political Tension in Hartford

This tax debate is shaping up to be the defining issue in finalizing Connecticut’s $55.5 billion two-year state budget. With the legislative session nearing its conclusion, both sides are pushing competing budget visions:

• Democrats (especially legislative leaders) argue the surcharge ensures that the wealthiest contribute more during a time of increasing inequality.

• Republicans and the governor propose alternative budgets that rely on cost containment and no new taxes, highlighting a strong credit rating and surplus as reasons to avoid revenue increases.

  
  

The backdrop: growing uncertainty about federal funding under the Trump administration and fears of an economic slowdown that could reduce state tax receipts.

What This Means for Tax Advisors and High-Income Clients

If passed, the surcharge could:

• Increase the effective capital gains tax rate on top earners

• Create new planning incentives to accelerate or defer capital transactions

• Influence residency planning for high-net-worth clients considering relocation

• Prompt reevaluation of charitable giving, estate, and trust strategies

  
  

Tax professionals in Connecticut should start modeling dual-scenario tax outcomes and advising clients on potential 2025–2026 impacts.

Final Thought

Connecticut’s capital gains surcharge debate underscores the increasing pressure on states to fund their budgets while navigating progressive tax policy and political friction.

At Bizora AI, we’re tracking these developments closely — helping advisors and firms forecast policy changes, optimize strategy, and keep clients informed with real-time tax intelligence.