It’s hard to imagine, but just twenty years ago, there was no income tax in my home state of Connecticut (yes, we all have embarrassing things in our past). The Wall Street Journal opines about a new effort to hike the top tax rate in the Nutmeg State and explores how the income tax has led to a fiscal disaster – something that should be required reading for politicians in the nine states that so far have avoided the mistake of taxing income:
Connecticut’s Fiscal Suicide
September 2, 2009 by Dan Mitchell
Connecticut grabs $7,007 in state and local taxes per man, woman and child resident, according to the Tax Foundation, more per capita than every state but New York and New Jersey. That’s hardly the company any state would want to keep these days, but the politicians in Hartford seem intent on following Trenton and Albany off the tax-and-spend cliff. This week Republican Governor Jodi Rell proposed a $1-billion-plus income tax hike, raising the top tax rate to 6.5% from 5%… The tax hike would be retroactive to January 1, meaning the government would snatch money that residents have already earned. Perhaps she aspires to the nether-world approval ratings of New Jersey Governor Jon Corzine. Given the size of its deficit, it’s hard to believe that for 200 years Connecticut balanced its budget without any income tax and became the richest state in the bargain. That changed in 1991 when then-Governor Lowell Weicker pushed the state’s first-ever personal income tax with a promise that the rate would remain flat at 4.5%. But the next time the state couldn’t pay its bills, in 2001, the legislature raised Mr. Weicker’s tax to 5%. …Since the income tax became law, Connecticut has experienced a long, slow exodus of jobs and people. The Yankee Institute notes the astounding fact that since 1992, the year the income tax went into effect, businesses in Connecticut have hired a grand total of zero net new workers. …What the income tax did stimulate was a spending binge and big pay raises for the state’s unionized government workers. The year before the income tax was enacted, Connecticut’s government expenditures per capita ranked right in the middle of all states; now it ranks in the top 10. Per capita real spending has nearly doubled since the income tax was enacted. …We’d suggest that Ms. Rell give Governor Martin O’Malley of Maryland a call. Two years ago he passed a similar income tax hike dressed up as tax “fairness.” Today, a third of the millionaires have vanished from the tax rolls—and the state is still in deficit. To revive growth and boost family incomes in Connecticut, Ms. Rell should be working to repeal the income tax, not expand it. It’s a failed experiment that has mostly benefited the likes of Florida and Texas.