Is Connecticut committing financial suicide? The question is vital not only to those who live within its borders, but to every American.
Worsening an already bad financial climate, the state has passed a $1.2 billion tax increase. In addition to income and sales tax hikes, levies on data processing will triple by 2016. A 20% surcharge on corporate taxes that was supposed to expire was renewed for an extra two years, and a new formula to tax corporate profits across state lines was adopted.
Even before the hikes, Connecticut’s economy was deeply troubled. The American Legislative Exchange Council ranked it as 45th in economic performance, and 47th in economic outlook.
According to the states’ CBIA Government affairs organization organization, “The reality is Connecticut’s reputation as a place to do business will worsen, eroding jobs and revenues…Connecticut lost population last year—not because we don’t tax enough services or tax rates are too low—but because people with capital to invest went to more favorable locations, and others left to find better job opportunities. Adding more costs onto those who create jobs and those who fill them will only make matters worse.”
The concern was echoed by the Yankee Institute for Public Policy “Some politicians don’t seem to understand that tax policies have consequences,” said Carol Platt Liebau, Yankee Institute president. “The more you tax something, the less of it you get – and that goes not just for businesses and jobs, but also for the affluent – who happen to be the most mobile segment of society.”
In 1991, Connecticut became the first state in 34 years to adopt an income tax. Writing in The Washington Policy Institute Fergus Cullen analyzed what followed:
“When Connecticut adopted its income tax, the state gave up a huge competitive advantage over neighboring Massachusetts, New York, and New Jersey. Absent that advantage, Connecticut has lost one in ten residents in net population migration to other states. People are voting with their feet – and their U-Haul vans.
“This is especially true of the affluent, many of whom already have second homes, typically in other states, and choices about where they reside for tax purposes. Tax data indicates that those who moved out of Connecticut have significantly higher incomes than the fewer who move in. Those who remain pay higher taxes to make up the difference.
“Population loss hurts in non-economic ways, too. As Yogi Berra might have said, it is hard to see the people who aren’t here. There are one in ten fewer Rotarians, one in ten fewer youth sports coaches, one in ten fewer volunteers giving time to local non-profits. Young people are less likely to live in the communities where they grew up. Grandparents live further from their grandchildren. The income tax has led to a huge loss of social capital that is hard to measure but nonetheless real.”
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The latest tax increases will add to those woes.
In 2013, The CATO Institute asked how the state fell into its financial free fall:
“Connecticut has so many advantages that it might be hard to understand how it became one of America’s worst-performing state economies…during the past two decades some 300,000 more Connecticut residents have moved out of the state than have moved in….
“Perhaps with the complacency of old money, Connecticut policymakers came to believe they didn’t need to compete for investors and entrepreneurs — the key people who make prosperity happen…
“During the last century, Connecticut’s state government became bigger, raising taxes and in other ways making it more costly to do business. Connecticut certainly wasn’t the only state to have adopted such policies, but many states avoided them and prospered.
“Connecticut economic regulations multiplied, further increasing the cost of doing business. Steven P. Lanza, reporting in The Connecticut Economy, published quarterly by the University of Connecticut, found that “excessive regulation plays a role in hamstringing business owners and entrepreneurs who simply don’t have the resources of larger firms to cope with these constraints…
“In addition, state land use restrictions have limited the number of suitable business locations and often made it harder to establish a business.”
The residents of the nation’s 49 other states should care about Connecticut’s fate. It’s path of higher taxes, higher spending, and increased regulation are precisely the same course that the federal government has embarked on. The consequences for the whole American economy are equally dire.