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Posts Tagged ‘Connecticut’

As a former Connecticut resident, I’m ashamed that my home state, which used to be a success story with no income tax, has now morphed into a high-tax welfare state that is now increasingly infamous for the outflow of productive people and taxable income.

And even though I left several decades ago, I also feel vaguely guilty that my former state produces politicians such as Senator Chris Murphy.

Most people have never heard of him since he’s never accomplished anything in Washington. Though I would argue that’s a good thing since he’s a knee-jerk statist.

But I gather that Senator Murphy no longer wants to be in the shadows. Here’s a tweet he issued yesterday that has received a lot of publicity.

Wow, this is an astounding display of statolatry. The kind of statement one might expect from a functionary from a totalitarian regime.

Or maybe a line from George Orwell’s 1984. Just think of the implications:

  • Are you afraid of spiders? Hey, government can help!
  • Are there dandelions in your yard? Don’t worry, Big Brother to the rescue!
  • Did McDonald’s forget to include a toy in your Happy Meal? Time for political action!

While his views are reprehensible, I’m actually glad Senator Murphy inadvertently revealed his statism.

If nothing else, it’s produced some clever humor. The folks at Twitchy have been sharing this tweet, which came from a parody account for a North Korean news service.

By the way, if you’re like me and are not familiar with “Juche,” it’s apparently a North Korean twist on Marxism.

In other words, take the traditional horror of communism and then add a layer of autarky to ensure even greater misery.

And here’s another amusing take, juxtaposing Murphy’s statolatry with Reagan’s wisdom (see last video from this collection). And they even demoted him to Representative rather than Senator.

But we shouldn’t merely mock Murphy.

His views truly are reprehensible because they imply there is no element of human existence that is independent of government. The state is everything.

And if that sounds familiar, it’s probably because you know something about economics, philosophy, and history. The most evil people in world history have expressed the same sentiment.

Such as the leader of Germany’s National Socialist Workers Party.

And the first dictator of the Soviet Union.

Though if I had to pick the quote that is closest to Murphy’s, it would be this awful statement from Mussolini.

Senator Murphy obviously doesn’t share the horrid ideology of either national socialism or international socialism, so his version of statolatry is far more benign.

Sort of like this cartoon instead of gulags and concentration camps.

But I still think his views are reprehensible. We’re not children and the government is not our parents. America’s Founding Fathers strictly limited the powers of the federal government because they understood the risks of a coercive state dictating our lives. Even if it’s benign statism rather than totalitarian statism.

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Seven years ago, I wrote about the “Butterfield Effect,” which is a term used to mock clueless journalists.

A former reporter for the New York Times, Fox Butterfield, became a bit of a laughingstock in the 1990s for publishing a series of articles addressing the supposed quandary of how crime rates could be falling during periods when prison populations were expanding. A number of critics sarcastically explained that crimes rates were falling because bad guys were behind bars and invented the term “Butterfield Effect” to describe the failure of leftists to put 2 + 2 together.

Journalists are especially susceptible to silly statements when writing about the real-world impact of tax policy.

They don’t realize (or prefer not to acknowledge) that changes in tax rates alter incentives to engage in productive behavior, and this leads to changes in taxable income. Which leads to changes in tax revenue, a relationship known as the Laffer Curve.

Here are some remarkable examples of the Butterfield Effect.

  • A newspaper article that was so blind to the Laffer Curve that it actually included a passage saying, “receipts are falling dramatically short of targets, even though taxes have increased.”
  • Another article was entitled, “Few Places to Hide as Taxes Trend Higher Worldwide,” because the reporter apparently was clueless that tax havens were attacked precisely so governments could raise tax burdens.
  • In another example of laughable Laffer Curve ignorance, the Washington Post had a story about tax revenues dropping in Detroit “despite some of the highest tax rates in the state.”
  • Likewise, another news report had a surprised tone when reporting on the fully predictable news that rich people reported more taxable income when their tax rates were lower.

And now we can add to the collection.

Here are some excerpts from a report by a Connecticut TV station.

Connecticut’s state budget woes are compounding with collections from the state income tax collapsing, despite two high-end tax hikes in the past six years. …wealthy residents are leaving, and the ones that are staying are making less, or are not taking their profits from the stock market until they see what happens in Washington. …It now looks like expected revenue from the final Income filing will be a whopping $450 million less than had been expected.

Reviewing the first sentence, it would be more accurate to replace “despite” with “because.”

Indeed, the story basically admits that the tax increases have backfired because some rich people are fleeing the state, while others have simply decided to earn and/or report less income.

The question is whether politicians are willing to learn any lessons so they can reverse the state’s disastrous economic decline.

But don’t hold your breath. We have an overseas example of the Laffer Curve, and one of the main lessons is that politicians are willing to sacrifice just about everything in the pursuit of power.

Here are some passages from a story in the U.K.-based Times.

The SNP is expected to fight next month’s general election on a commitment to reintroduce a 50p top rate of tax… The rate at present is 45p on any earnings over £150,000. …civil service analysis suggested that introducing a 50p top rate of tax in Scotland could cost the government up to £30 million a year, as the biggest earners could seek to avoid paying the levy by moving their money south of the border.

If you read the full report, you’ll notice that the head of the Scottish National Party previously had decided not to impose the higher tax rate because revenues would fall (just as receipts dropped in the U.K. when the 50 percent rate was imposed).

But now that there’s an election, she’s decided to resurrect that awful policy, presumably because a sufficient number of Scottish voters are motivated by hate and envy.

This kind of self-destructive behavior (by both politicians and voters) is one of the reasons why I’m not overly optimistic about the future of Scotland if it becomes an independent nation.

P.S. I’m not quite as pessimistic about the future of tax policy in the United States. The success of the Reagan tax cuts is a very powerful example and American voters still have a bit of a libertarian streak. I’m not expecting big tax cuts, to be sure, but at least we’re fighting in the United States over how to cut taxes rather than how to raise them.

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To pick the state with the best tax policy, the first step is to identify the ones with no income tax and then look at other variables to determine which one deserves the top ranking.

For what it’s worth, I put South Dakota at the top.

Picking the state with the worst tax policy is more difficult. There are lots of reasons to pick California, in part because it has the highest income tax rate of any state. But there are also strong arguments that New York, Illinois, and New Jersey deserve the worst rating.

And let’s not forget my home state of Connecticut, which invariably ranks near the bottom based on research from the Tax Foundation, the Mercatus Center, the Cato Institute, the Fraser Institute, and WalletHub.

The Wall Street Journal opined yesterday about Connecticut’s metamorphosis from a zero-income-tax state to a high-tax swamp.

Hard to believe, but a mere 25 years ago—a lifetime for millennials—Connecticut was a low-tax haven for Northeasterners. The state enacted an income tax in 1991 that was initially a flat 4.5% but was later made steeply progressive. In 2009 former Republican Governor Jodi Rell raised the top rate on individuals earning $500,000 or more to 6.5%, which Democratic Gov. Dannel Malloy has lifted to 6.99% (as if paying 0.01% less than 7% is a government discount). Connecticut’s top tax rate is now higher than the 5.1% flat rate in the state formerly known as Taxachusetts.

This big shift in the tax burden has led to predictably bad results.

…the tax hikes have been a disaster. A net 30,000 residents moved to other states last year. Since 2010 seven of Connecticut’s eight counties have lost population, and the hedge-fund haven of Fairfield County shrank for the first time last year. In the last five years, 27,400 Connecticut residents have moved to Florida. …More than 3,000 Connecticut residents have moved to zero income-tax New Hampshire in the last two years. While liberals wax apocalyptic about Kansas’s tax cuts, the Prairie State has welcomed 1,430 Connecticut refugees since 2011 and reversed the outflow between 2005 and 2009. Yet liberals deny that tax policies influence personal or business decisions.

The good news is that the state’s leftist politicians recognize that there’s a problem. The bad news is that they don’t want to undo the high tax rates that are causing the problems. Instead, they want to use some favoritism, cronyism, and social engineering.

Connecticut’s progressive tax experiment has hit a wall. Tens of thousands of residents are fleeing for lower tax climes, which has prompted Democrats to propose—get this—paying new college grads a thousand bucks to stick around. …proposing a tax credit averaging $1,200 for grads of Connecticut colleges who live in the state as well as those of out-of-state schools who move to the state within two years of earning their degree.

As the WSJ points out, special tax credits won’t be very effective if the job market stinks.

Yet the main reason young people are escaping is the lack of job opportunities. Since 2010 employment in Connecticut has grown at half the rate of Massachusetts and more slowly than in Rhode Island, New Jersey or Kansas.

By the way, this isn’t the first time that Connecticut’s politicians have resorted to special-interest kickbacks.

The Wall Street Journal also editorialized last year about the state’s one-off bribe to keep a hedge fund from fleeing to a state with better policy.

Last week the Governor presented Bridgewater with $5 million in grants and $17 million in low-interest, forgivable loans to renovate its headquarters in Westport along the state’s Gold Coast.

But the bit of cronyism won’t help ordinary people.

Connecticut has lost 105,000 residents to other states over the last five years while experiencing zero real economic growth. …So here is the new-old progressive governing model: Raise taxes relentlessly in the name of soaking the 1% to pay off government unions. When that drives people out of the state, subsidize the 0.1% to salvage at least some jobs and revenue. Ray Dalio gets at least some of his money back. The middle class gets you know what.

What’s particularly frustrating is that the state’s leftist governor understands the consequences of bad tax policy, even though he’s unwilling to enact the right solution.

Mr. Malloy said that other states including New York were trying to lure Bridgewater, and Connecticut couldn’t afford to lose the $150 billion fund or its 1,400 high-income employees. …The Governor’s office says Nutmeg State tax revenues could shrink by $4.9 billion over the next decade if all of Bridgewater’s employees departed. …“We see what happens in places like New Jersey when some of the wealthiest people move out of the state,” Mr. Malloy warned. This is the same Governor who has long echoed the progressive left’s claim that tax rates don’t matter. Maybe he was knocked off his horse by a vision on the road to Hartford.

This is remarkable.

Governor Malloy recognizes that tax-motivated migration is a powerful force.

He even admits that it causes big Laffer Curve effects, meaning governments actually lose revenue over time when tax rates are punitive.

Yet he won’t fix the underlying problem.

Maybe there’s some unwritten rule that Connecticut has to have bad governors?

Mr. Malloy’s Republican predecessor Jodi Rell raised the top marginal tax rate to 6.5% from 5% on individuals earning more than $500,000, and Mr. Malloy raised it again to 6.99%. Hilariously, Ms. Rell said last month that she’s also moving her residence to Florida because of the “downward spiral” in Connecticut that she helped to propel.

And lots of other people are moving as well.

The death tax plays a role, as explained in a column for the Hartford Courant.

Connecticut spends beyond its means and, therefore, taxes more than it should. …they’re driving the largest taxpayers away. We’ve passed the tipping point beyond which higher taxes beget lower revenues… The wealthy, in particular, have decided in swelling numbers they won’t be caught dead — literally — in our state. Evidence strongly suggests that estate and gift taxes are the final straw. To avoid Connecticut’s estate tax, wealthy families are moving to one of the 36 states without one.

And the loss of productive people means the loss of associated economic activity.

Including tax revenue.

Where wealthy families choose to establish residency has important ramifications for Connecticut’s economy and fiscal health. The earlier these golden geese flee, the greater the cumulative loss of golden eggs in the form of income taxes, sales taxes, jobs created by their companies, philanthropic support and future generations of precious taxpayers.

The data on tax-motivated migration is staggering.

Between 2010 and 2013, the number of federal tax returns with adjusted gross incomes of $1 million or more grew only 9.5 percent here vs. 22 percent in Massachusetts, 16 percent in New York and Rhode Island, and 30 percent in Florida. Slow economic growth and ever higher taxes are both cause and effect of out-migration. …In 2008, the state Department of Revenue Services asked accountants and tax lawyers whether clients moved out of state due to the estate tax, and 53 percent of respondents said it was the principal reason. …The outflow accelerated following 2011’s historic $2.5 billion tax increase. In the following two years, Connecticut suffered a net out-migration of more than 27,000 residents who took nearly $4 billion in annual adjusted gross income elsewhere, a stunning $500,000 per household. According to the Yankee Institute, the average adjusted gross income of each person leaving tripled in the past 10 years. At an average tax rate of 6.5 percent, this represents more than $250 million in lost income tax revenue annually, which is 50 percent more than the state collected in estate and gift taxes in 2014.

By the way, just in case some of you are skeptical and think that Connecticut’s deterioration is somehow unconnected to tax policy, I’ll close with this excerpt from some academic research that calculated the nationwide impact of state tax policy differences.

We consider the complete sample of all U.S. establishments from 1977-2011 belonging to firms with at least 100 employees and having operations in at least two states. On the extensive margin, we find that a one percentage point increase (decrease) in the state corporate tax rate leads to the closing (opening) of 0.03 establishments belonging to firms organized as C corporations in the state. This corresponds to an average change in the number of establishments per C corporation of 0.4%. A similar analysis shows that a one percentage point change in the state personal tax rate a§ects the number of establishments in the state per pass-through entity by 0.2-0.3%. These effects are robust to controls for local economic conditions and heterogeneous time trends. …This lends strong support to the view that tax competition across states is economically relevant.

To be sure, the numbers cited above may not sound large.

But keep in mind that small changes, if sustained over time, grow into very big results.

In the case of Connecticut, we have a state that has suffered dramatic negative consequences ever since the income tax was imposed back in 1991.

P.S. While my former state obviously has veered sharply in the wrong direction on fiscal policy, I must say that I’m proud that residents are engaging in civil disobedience against the state’s anti-gun policies.

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Even though it’s theoretically possible to design a desirable budget deal that includes a tax increase, I’m a big advocate of the no-tax-hike pledge for the simple reason that – in the real world – support for genuine spending restraint and real entitlement reform evaporates once politicians think higher revenues are an option.

Heck, bumping into the Loch Ness Monster while riding my unicorn is more likely than an acceptable budget deal including tax hikes.

Though I confess that my anti-tax resolve sometimes gets a bit wobbly when I think about unsavory tax breaks such as the ethanol credit, the state and local tax deduction, and the healthcare exclusion. I have to remind myself that while these provisions are very odious, they should be repealed as part of tax reform rather than as part of some deal that gives politicians more money to waste.

Now there’s another example of a tax that is very tempting, and it comes from my home state of Connecticut.

When I was growing up, the Nutmeg State didn’t have an income tax and it was a refuge for overtaxed New Yorkers. But then an income tax was imposed in 1991. And ever since politicians got their hands on this new source of revenue, the burden of spending has skyrocketed and Connecticut has become a fiscal dystopia.

So you would think I’d be reflexively hostile to additional tax hikes by the politicians in Hartford. And I should be, but I’m perversely intrigued by a new levy they’re considering. The Wall Street Journal opines on the proposal.

…most Yale University professors are proud to be progressives. Well, they are now getting the chance to live their convictions as Connecticut Democrats attempt to soak Yale’s rich endowment. Democrats in Hartford have proposed taxing the unspent earnings of university endowments with more than $10 billion in assets. Only Yale’s $25.6 billion endowment—the country’s second largest after Harvard—fits the tax bill. Yale’s tax-exempt investments earned $2.6 billion last year, eight times more than the University of Connecticut’s $384 million endowment. Oh, the inequality! …Hartford is already taxing anything that moves. Last year Democrats raised the top individual tax rate to 6.99% and extended a 20% corporate surtax. The tax hikes precipitated General Electric’s decision in January to move its headquarters to Boston. Between 2010 and 2015, Connecticut lost 105,000 residents to other states. For the last five years, it has recorded zero real GDP growth.

Nobody should be double taxed on income that is saved and invested, so my mind tells me that the right approach is to give all taxpayers the treatment now reserved for places like Yale.

But my heart tells me the opposite because it’s galling that Yale is dominated by statists who presumably want higher taxes on the rest of us, so maybe it’s time they swallow some of their own bitter medicine.

But the way, it’s not just state politicians that are salivating to pillage Yale. It’s now being reported that city politicians want a slice of the action.

The mayor of New Haven is backing a push to revisit an 1834 Connecticut statute affecting taxes for Yale University, saying new guidelines are needed to assess liability for the institution… “Since taxing real estate and other property is the only form of municipal taxation allowed by state law, more modern guidelines as to what’s taxable and what’s tax exempt are essential,” New Haven Mayor Toni Harp said this week in testimony supporting the legislation. …The Ivy League university has strongly objected to proposal.

Gee, I wonder if Yale also “strongly objected” to the various big tax hikes that have savaged the state’s investors, entrepreneurs, and small businesses? Or is their battlefield conversion against tax hikes solely a selfish gesture.

Needless to say, I’m sure it’s the latter, which is why part of me is thinking it would be rough justice if the jackals in state and local government descended on Yale.

That being said, I certainly don’t like the idea of these profligate politicians getting their greedy hands on even more money. So if they do impose taxes on Yale, I hope the university will consider a very thoughtful invitation from the Governor of Florida.

Gov. Rick Scott…issued a statement calling on the Ivy League institution to pick up stakes and move on down to sunny Florida. “We would welcome a world-renowned university like Yale to our state and I can commit that we will not raise taxes on their endowment,” Governor Scott said

Hmmm…. Better weather and no state income tax. Sounds like a good deal to me.

And since Florida doesn’t double tax anybody, Yale’s leftist professors could sleep easier at night since they no longer would be hypocrites who work at a school that enjoys tax-free status on its investments while neighbors are being taxed.

P.S. I should add Yale’s anti-tax leftists to my collection of statist hypocrites.

P.P.S. I might be willing to accept a tax hike if it somehow could be designed so that it only applied to advocates of higher taxes.

P.P.P.S. While some tax distortions are destructive, some are simply bizarre.

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In recent years, I’ve argued that America’s corporate tax system must be very bad if companies are not only redomiciling in places like Cayman and Bermuda, but also inverting to countries such as Canada and the United Kingdom.

Well, the same thing happens at the state level. Yes, companies (as well as entrepreneurs and investors) usually move from high-tax states to low-tax states, with zero-income tax jurisdictions like Texas reaping a windfall of new jobs.

But when a big company like General Electric announces that it will move its headquarters from Connecticut to a state like Massachusetts, that’s a damning indictment of Connecticut. After all, Massachusetts doesn’t exactly have a reputation as a low-tax refuge.

The always-superb editorial page of the Wall Street Journal looks at the big-picture implications.

Hard to believe, but Connecticut was once a low-tax haven in the Northeast. Its business climate has grown so hostile in recent years, however, that General Electric on Wednesday announced that it will move its headquarters to Boston. When Taxachusetts becomes a reprieve, Governor Dan Malloy ought to know Connecticut has a problem.

Exactly.

And what’s really amazing is that Connecticut didn’t even have an income tax as recently as 1990.

But once politicians got the power to impose that levy, the state has been in a downward spiral.

And it doesn’t appear that the decline will end anytime soon.

… last summer…Connecticut’s legislature grabbed an additional $1.3 billion in tax hikes, the fifth increase since 2011. …The state’s $40.3 billion two-year budget boosted the top marginal tax rate on individuals earning more than $500,000 to 6.99% from 6.7% and 6.5% in 2010. Mr. Malloy also extended for the second time a 20% corporate surtax that his Republican predecessor Jodi Rell had imposed in 2009. …The tax hikes have failed to cure Connecticut’s chronic budget woes.

Of course they haven’t. Raising taxes to cure an over-spending problem is like trying to douse a fire with gasoline.

But the tax-happy politicians have one achievement. They’ve managed to drive the economy into the dumps.

Since 2010 the…State has recorded zero real GDP growth, the lowest in the nation save Louisiana (-0.7%) and Maine (-0.6%). Connecticut is one of only four states (Illinois, Vermont, West Virginia) whose populations have declined since 2012.

Notwithstanding all this bad economic news, politicians in Hartford continue to spend like there’s no tomorrow.

Over the next two years spending is set to rise by $1.5 billion, including $700 million in higher personnel costs. Pension payments are soaring. Connecticut’s pension system is 48% funded, third worst in the country after Illinois and Kentucky.

Good grief, as Charlie Brown might say. The bottom line is that the productive people who are left in Connecticut should make plans to leave before it’s too late.

By the way, there are two other noteworthy observations in the WSJ‘s editorial.

First, I like the fact that General Electric has escaped the fiscal hell-hole of Connecticut, but I’m not a fan of the company because it likes to feed at the public trough.

And, indeed, it will be getting special privileges from Massachusetts.

Mr. Immelt says GE, which has been headquartered in Fairfield since 1974, selected Boston after considering…a “package of incentives” valued at as much as $145 million.

Huh, whatever happened to the quaint notion that the laws should apply equally to everyone? Why should GE enjoy one set of rules while other companies labor under a different set of rules?

I imagine Voltaire is spinning in his grave.

Second, even though Massachusetts was foolish enough to engage in favoritism for GE, the state actually isn’t as bad as its reputation.

As the WSJ explains, it has a flat tax for households and it also has been cutting its corporate rate.

Massachusetts has the lowest taxes in the Northeast outside of New Hampshire… The Tax Foundation ranks Massachusetts’s business tax climate 25th in the country, ahead of Georgia (39), Connecticut (44), Rhode Island (45) and New York (49). Massachusetts has worked to shake its high-tax image by cutting its corporate rate to 8% from 9.5% and flat income tax to 5.15% from 5.3% in 2008. In the same period, Connecticut has raised its corporate rate to 9% from 7.5% and its top income tax rate to 6.99% from 5%.

Wow, I’m embarrassed that I used to live in Connecticut.

Though, in my defense, I was a kid when my family escaped from New York and Connecticut was a zero-income tax state when that happened.

Now, though, Connecticut merely serves as a bad example.

There are two broad lessons from this episode.

  1. A state that doesn’t have an income tax should never allow the adoption of that awful levy. I’m thinking specifically of the folks in the Pacific Northwest since some of the big spenders in the state of Washington are advocating for that levy. And add Wyoming and Alaska to that list since politicians in those states over-spent when energy prices were high and some of them are now pushing to impose an income tax since tax receipts from energy are no longer climbing.
  2. A state with a flat tax should never allow the introduction of multiple rates. It’s remarkable that Massachusetts has a flat tax (thanks to an old provision in the state’s Constitution), but the key lesson is that the flat tax has made it difficult for leftist politicians to raise the rate since all taxpayers would be adversely impacted (this is also why it’s been difficult for big spenders in Illinois to raise tax rates). In a system with graduated rates, by contrast, it’s much easier for politicians to play the divide-and-conquer game and selectively raise some tax rate.

I’ll close with one additional observation that this story is yet another example of why federalism is good.

We get to learn the damaging impact of high taxes and excessive spending thanks to the fact that we still have some government taking place at the state and local level.

And this explains why our statist friends want centralization. If there’s a one-size-fits-all policy of high taxes and wasteful spending, it’s much harder to move across national borders than it is to move across state borders. That insulates politicians (though not fully since there are varying amounts of tax competition between nations, both for investment and people) from the consequences of their reckless behavior.

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Every so often, I get asked why I’m so rigidly opposed to tax hikes in general and so vociferously against the imposition of new taxes in particular.

In part, my hostility is an ideological reflex When pressed, though, I’ll confess that there are situations – in theory – where more taxes might be acceptable.

But there’s a giant gap between theory and reality. In the real world, I can’t think of a single instance in which higher taxes led to a fiscally responsible outcome.

That’s true on the national level. And it’s also true at the state level.

Speaking of which, the Wall Street Journal is – to put it mildly – not very happy at the tax-aholic behavior of Connecticut politicians. Here’s some of what was in a recent editorial.

The Census Bureau says Connecticut was one of six states that lost population in fiscal 2013-2014, and a Gallup poll in the second half of 2013 found that about half of Nutmeg Staters would migrate if they could. Now the Democrats who run the state want to drive the other half out too. That’s the best way to explain the frenzy by Governor Dannel Malloy and the legislature to raise taxes again… Mr. Malloy promised last year during his re-election campaign that he wouldn’t raise taxes, but that’s what he also said in 2010. In 2011 he signed a $2.6 billion tax hike promising that it would eliminate a budget deficit. Having won re-election he’s now back seeking another $650 million in tax hikes. But that’s not enough for the legislature, which has floated $1.5 billion in tax increases. Add a state-wide municipal sales tax that some lawmakers want, and the total could hit $2.1 billion over two years.

In other words, higher taxes in recent years have been used to fund more spending.

And now the politicians are hoping to play the same trick another time.

Apparently they don’t care that they’ve turned the Nutmeg State into a New England version of Illinois.

…the state grew a scant 0.9% in 2013, the last year state data are available. That was tied for tenth worst in the U.S. The state’s average compounded annual growth for the last four years is 0.42%. Slow growth means less tax revenue but spending never slows down. Some “40% of the state budget goes to government employee compensation and benefits, including payroll, state pensions, teacher pensions and current and retiree health care,” says Carol Platt Liebau, president of the Hartford-based Yankee Institute. …The Tax Foundation ranks Connecticut as one of the 10 worst states to do business. The state finished last in Gallup’s Job Creation Index in 2014 and now ties with Rhode Island for the worst job creation in the index since 2008.

What’s particularly discouraging is that Connecticut didn’t even have an income tax twenty-five years ago. But once the politicians got a new source of revenue, it’s been one tax hike after another.

Not too many years ago Connecticut was a tax refuge for New York City workers, but since it imposed an income tax in 1991 the rate has kept climbing, as it always does.

There are a couple of lessons from the disaster in Connecticut.

First and foremost, never give politicians a new source of revenue, which has very important implications for the debate in Washington, DC, about a value-added tax.

Unless, of course, you want to enable a bigger burden of government.

And for the states that don’t already have an income tax, the lesson is very clear. Under no circumstances should you allow your politicians to follow Connecticut on the path to fiscal perfidy.

Yet that’s exactly what may be happening in America’s northwest corner. As reported by the Seattle Times, there’s a plan percolating to create an income tax in the state of Washington. It’s being sold as a revenue swap.

State Treasurer Jim McIntire has a “grand bargain” in mind on tax reform and he wants to bend your ear. …the McIntire plan would institute a 5 percent personal-income tax with some exemptions, eliminate the state property tax and reduce business taxes. The plan would raise billions of dollars… The proposal also would lower the state sales tax to 5.5 percent from 6.5 percent.

But taxpayers should be very suspicious, particularly since politicians are talking about the need for more “investment,” which is a common rhetorical trick used by politicians who want to squander more money.

“It is mathematically impossible for us to sustain an adequate investment in education on a shrinking tax base,” he said.

And when you read the fine print, it turns out that the politicians (and the interest groups in the government bureaucracy) want a lot more additional money from taxpayers.

…the plan would raise $7 billion in state revenue but would lower local levies by $3 billion, for an overall increase of about $4 billion.

Advocates of the new tax would prefer to avoid any discussion of big-picture principles.

“We need to have less of an ideological conversation about this,” he said in a news conference.

And their desire to avoid a philosophical discussion is understandable. After all, the big spenders didn’t fare so well the last time voters had a chance to vote on whether the state should impose an income tax.

Voters may not welcome McIntire’s argument, either. In 2010, a proposed income tax on high earners failed by a nearly 30-point margin.

The voters in Washington were very wise back in 2010, so let’s hope they haven’t lost their skepticism about the revenue plans of politicians over the past few years.

There’s every reason to suspect, after all, that the adoption of an income tax would be just as disastrous for the Evergreen State as it was for the Nutmeg State.

To close, I want to share some great advice that was presented by the always sound Professor Richard Vedder. I was at a conference a few years ago where he was also one of the speakers. Asked to comment on whether the Lone Star State should have an income tax, he threw his hands in the air and cried out with passion that, “Texas should give the Alamo to Osama bin Laden before allowing an income tax.”

So if I’m ever asked to speak in Seattle on fiscal policy, I’m going to steal Richard’s approach and and warn that “The state of Washington should give the Space Needle to North Korea before allowing an income tax.”

I doubt I’ll capture Professor Vedder’s rhetorical flair, but there won’t be any doubt that I’ll be 100-percent serious about the dangers of a state income tax.

And what about my home state of Connecticut?

Well, I don’t know of any big landmarks that they could have traded to avoid an income tax. About the only “good” thing to say is that New York’s tax system is probably even worse.

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The Wall Street Journal opines about the latest bone-headed move by New York politicians to drive away productive activity. Connecticut is not exactly a low-tax jurisdiction, but sometimes being less worse is all that’s necessary to win a tax competition battle.
Connecticut Governor Jodi Rell, a Republican who usually doesn’t mind higher taxes…has nonetheless declared a tax-competition border war amid the New York Assembly’s bid “to vastly increase the tax liability of hedge fund professionals who work in New York.” That’s how Mrs. Rell put it in a letter last week to the New York Hedge Fund Roundtable, imploring its members to relocate to her state and offering to do “anything possible to assist you,” including the aid of state “relocation specialists.” …Arguably the hallmark of bad decision-making is whatever they cook up in Albany—which is planning to tax the carried interest income of New York-based hedge fund managers who live out of state at the top ordinary tax rate of 8.97%. …the New York Assembly…thinks it can raise $50 million by targeting bridge-and-tunnel commuters to Manhattan too. It never will, given the mobility of capital. New York City Mayor Michael Bloomberg—who knows the combined city-state top tax rate approaches 13%—told the New York Observer that “I think it’s the best thing that ever happened to Connecticut. I can’t imagine why every hedge fund wouldn’t pick up tomorrow and move.” …Last September—after years of tax-hike plans that fell through—Mrs. Rell and the Democratic legislature raised the top income tax rate to 6.5% from 5% on filers making more than $500,000. The state’s combined state-local tax burden of 11.1% is the third highest in the nation, according to the Tax Foundation, after New York (No. 2) and New Jersey (No. 1). Those sins duly noted, Mrs. Rell is nonetheless right in this case, and you can expect a further migration to the Nutmeg State from the economic nut house that is New York.

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