If one wanted to chart a course for steering a state onto the shoals, look no further than Connecticut.
Twenty-five years ago, the Nutmeg State had no state income tax and served as tax refuge for many New York City workers.
Those days are long gone; last week the Connecticut legislature again raised state income tax rates, with the top marginal rate set to rise to 6.99 percent.
Of course, Gov. Dannel P. Malloy promised during his re-election campaign last year that he wouldn’t raise taxes, but that’s the same thing he said in 2010, a year before he signed a $2.6 billion tax hike.
The thing is, it’s not like Connecticut is growing like gangbusters and can afford to bleed its citizens dry.
…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.
The Journal added that 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 state residents would migrate if they could.
If all of the above weren’t bad enough, lawmakers also made permanent a 20 percent surtax on Connecticut-based companies’ annual tax liability – a tax on a tax – which would be figured on Connecticut companies’ world-wide income, rather than what they earn in the state, according to the Journal.
Consider some of the corporations headquartered in Connecticut: Aetna, Cigna, General Electric, Pratt & Whitney, Praxair and Xerox.
Why would any of the above stay in Connecticut when faced with this kind of competitive disadvantage?
No doubt economic development officials in low-tax states such as Texas and Florida are giddy with anticipation at getting a shot at landing the likes of a GE or Pratt & Whitney.
“The high marginal rates are bad enough, but it is an astonishing overreach to tax corporations headquartered in your state based on their worldwide income,” according to the Coyote Blog. “This leads to a huge double taxation problem for any company dumb enough to stay.”
(Top: Connecticut Statehouse, Hartford, Conn.)