Most States Ignore Tax Gap CT Is Working to Close

Connecticut has a nearly $3 billion tax gap, and state officials aren’t happy about it. What’s striking, though, is how rare it is for any state to even know its own number.

A new analysis from The Pew Charitable Trusts finds that Connecticut is one of only eight states that has made a serious effort to measure the difference between taxes legally owed and taxes actually collected. Most states don’t track the problem at all, and with the IRS bleeding staff, the data pipelines that make such estimates possible are getting narrower.

The gap matters. Connecticut’s Department of Revenue Services calculated a roughly $3 billion tax gap for 2022, a figure equal to about 13% of the total revenues supporting the state budget that year. Josh Goodman, a senior fiscal analyst with Pew, noted that the number matches what Connecticut spent on Medicaid at the same time. That’s not an abstraction. That’s schools, roads, and health coverage sitting uncollected.

What Connecticut is doing about it

Connecticut lawmakers and Gov. Ned Lamont agreed last year that the administration would annually assess the state tax gap and report strategies to reduce it. The Department of Revenue Services has already stood up a new discovery unit focused on identifying non-filers quickly, increasing audit rates, and reaching out to delinquent taxpayers to push them toward payment. The next gap report is due in December.

That kind of institutional commitment puts Connecticut ahead of nearly every other state. More than two decades of consistent effort. Eight states total, according to Goodman, who cited a University of Virginia analysis published last year by taxnotes.com.

Chris Collibee, Gov. Lamont’s budget spokesman, said the administration sees this as a matter of basic governance. “Fiscal transparency is a cornerstone of Connecticut state government,” Collibee told CT Mirror. “Few states routinely produce the data sets that are constantly being provided to the legislature and public. The Lamont administration, working in partnership with the legislature, is continuously looking for ways to ensure that monies owed to the state are received.”

The IRS problem

Here’s the complication. Every state with an income tax relies heavily on IRS data to track who’s filing and what they owe locally. A January 2026 memo from the U.S. Office of Inspector General questioned whether the IRS was ready for the 2026 tax-filing season, citing reduced staffing as a core concern. Fewer IRS employees means less data flowing to states, which means it gets harder to spot the non-filers and underreporters who drive the gap in the first place.

The workforce problem isn’t limited to the federal level. A 2024 survey by the Federation of Tax Administrators found that hiring and retention was the top challenge facing state and municipal revenue departments, and that one-third of their employees are 55 or older. The pipeline of experienced tax administrators is thinning out at exactly the moment when enforcement capacity matters most.

Goodman’s analysis in the Pew report is direct about what’s at stake for states that don’t act. “Governments routinely fail to collect this money, sometimes without state policymakers even being aware of the problem,” he wrote. “Yet if states collected even a few percentage points more of what they are legally entitled to, they could afford to cut taxes or invest in priorities in good times, and avoid tax hikes and service cuts in bad ones.”

What this means for Fairfield County

For Connecticut residents, the tax gap question connects directly to how the state funds its obligations. Fairfield County generates an outsized share of state income tax revenue, given the concentration of high earners in Greenwich, Westport, and Darien. When high-income filers underreport or don’t file at all, the hit falls disproportionately on a system that already leans hard on the Gold Coast’s tax base to subsidize services in Bridgeport, Waterbury, and Hartford.

That’s not a partisan argument. That’s math.

Connecticut’s Department of Revenue Services discovery unit will be the one to watch over the next several months. The agency’s ability to identify non-filers and convert delinquent accounts into actual collections will determine whether the $3 billion gap starts to shrink or holds steady while other states continue looking the other way. The December report will offer the clearest picture yet of whether the enforcement tools authorized by the General Assembly are producing real results.