Report Finds Billions in Connecticut Tax Revenue Goes Uncollected Each Year

Key Takeaways

• Connecticut’s 2022 tax gap estimated at $3 billion.
• Gap could fund nearly entire state Medicaid share.
• Only eight states have quantified their tax gaps.
• More tax‑agency staff correlates with higher revenue collection.
• Modest compliance gains could offset future tax increases.

Pulse Analysis

The "tax gap"—the difference between taxes owed and taxes collected—has emerged as a hidden fiscal drain for U.S. states. Pew Charitable Trusts’ latest analysis shows that most jurisdictions leave billions on the table, with Connecticut standing out as one of only eight states that have attempted a precise measurement. Nationally, the gap erodes budgets, forces higher rates, or curtails services, making it a critical yet under‑examined component of fiscal health.

Connecticut’s $3 billion shortfall for 2022 is striking because it could have covered almost the entire state share of Medicaid, a program that serves over a million residents. The figure stems from a 2023 law requiring the Department of Revenue Services to assess the gap, underscoring the role of legislative mandates in shining a light on revenue leakage. A concurrent Congressional Budget Office study links staffing levels at tax agencies to collection efficiency, implying that strategic hiring could translate directly into billions of additional dollars without raising rates.

For policymakers, the implications are clear: modest gains in compliance—just a few percentage points—could free up resources for tax relief, infrastructure, or social programs, while also providing a buffer against future economic downturns. Investing in enforcement technology, expanding audit capacity, and improving taxpayer outreach are practical steps that can shrink the gap. As states grapple with balanced‑budget pressures, the Connecticut case illustrates how addressing the tax gap can become a low‑cost, high‑impact lever for fiscal resilience.