Editorial Staff

New Study Finds Tax Policy Drives Connecticut’s Ongoing Fiscal & Economic Crisis

/in , , , , /by Editorial Staff
Share on Facebook
Share on Twitter
Share on
LinkedIn
+

BOSTON – Multiple rounds of tax increases aimed at high earners and corporations triggered an exodus from Connecticut of large employers and wealthy individuals, according to a new study published by Pioneer Institute.

“It’s no coincidence that the state’s ongoing economic struggles have corresponded with a string of experimental tax hikes,” said Greg Sullivan, who co-authored “Connecticut’s Dangerous Game: How the Nation’s Wealthiest State Scared Off Businesses and Worsened Its Fiscal Crisis,” with Andrew Mikula.

Over the last quarter-century, Connecticut has endured a series of budget crises. To cover ballooning costs, the state enacted sharp tax increases, including four income tax hikes in the last 20 years that caused the top rate to jump by 77 percent.

Connecticut Governor Ned Lamont said that the tax increases “totally disadvantage the state,” noting that it already has “some of the highest income tax rates in the country and we pay a price for that.”

In recent years, Connecticut has increasingly turned to high earners and large companies to close budget gaps, doubling a surcharge on large firms, establishing and then increasing a tax on luxury goods, and raising the income tax for the state’s highest earners.

The results have been disastrous. From 2008 to 2020, the state placed 49th among the states in private sector wage growth. In just the last couple of years, General Electric and Alexion Pharmaceuticals both moved their headquarters to Massachusetts. The flight of jobs has in turn affected existing homeowners, and before COVID-19, property values in wealthy Fairfield County were still 18 percent below their 2006 peak.

Further, these tax increases have failed to stabilize Connecticut’s finances, and large deficits continue to be projected for the state.

According to 2016 Connecticut Department of Revenue Services data, the state’s wealthiest 3 percent of families account for 41 percent of all income tax revenue. Between 2012 and 2018, Connecticut lost high earners at a rate that trailed only Washington, D.C., and those who fled earned more on average than taxpayers who migrated into the state.

Despite rate increases, the amount of taxes paid by Connecticut’s 100 top taxpayers plummeted 45 percent between 2015 and 2016 alone.

Massachusetts took a very different approach in the wake of the 1990-91 recession. A state income tax that was once 6.25 percent now stands at 5.0 percent. In recent years, the Commonwealth has gained millionaires at a higher rate than the national average, and nearly twice the rate of Connecticut.

Between January 2008 and January 2020, employment in Massachusetts grew by 12.5 percent. In contrast, Connecticut still hasn’t recovered all the jobs it lost during the Great Recession, and those it has created are, on average, lower paying.

Massachusetts has also benefited from Connecticut’s struggles to retain major corporations and wealthy individuals, and Connecticut is one of the few states from which taxable income migration to Massachusetts has been positive in recent years. That said, wealth migration remains a concern in Massachusetts, especially given the large scale of tax avoidance.

“Leaving has never been easier,” said Pioneer Institute Executive Director Jim Stergios. “In some cases, high earners can stay put and simply move money into trusts located in other states.”

About the Authors

Andrew Mikula is a Research Assistant at Pioneer Institute. Mr. Mikula was pre­viously a Lovett & Ruth Peters Economic Opportunity Fellow at Pioneer Institute and studied economics at Bates College.

Gregory Sullivan is Pioneer’s Research Director. Prior to joining Pioneer, Sullivan served two five-year terms as Inspector General of the Commonwealth of Massachusetts and was a 17-year member of the Massachusetts House of Representatives. Greg is a Certified Fraud Investigator, and holds degrees from Harvard College, The Kennedy School of Public Administration, and the Sloan School at MIT.

About Pioneer

Pioneer’s mission is to develop and communicate dynamic ideas that advance prosperity and a vibrant civic life in Massachusetts and beyond.

Pioneer’s vision of success is a state and nation where our people can prosper and our society thrive because we enjoy world-class options in education, healthcare, transportation, and economic opportunity, and where our government is limited, accountable and transparent.

Pioneer values an America where our citizenry is well-educated and willing to test our beliefs based on facts and the free exchange of ideas, and committed to liberty, personal responsibility, and free enterprise.

Get Updates on Our Economic Opportunity Research

Related Posts

Cris Ramón on How to Build Up Immigrant Businesses

This week on JobMakers, host Denzil Mohammed talks with Cris Ramón, son of immigrants from El Salvador, immigration policy analyst, and coauthor of the new report, Immigrant Entrepreneurship: Economic Potential and Obstacles to Success published by the Bipartisan Policy Center.

Taxation Without Legislation: Exploring Inflation’s Causes, Curses & Cures

Hubwonk host Joe Selvaggi talks with Bloomberg Columnist and National Review Editor Ramesh Ponnuru about the reasons for the sustained spike in inflation, its impact on savers and consumers, the possible policy remedies, and the likely intensity and duration of this cycle.

Hubwonk360 Video: If we tax them, will they leave?

In this brief, six-minute video, Pioneer Institute Executive Director Jim Stergios and Director of Government Transparency, Mary Z. Connaughton, walk through an amendment to the Massachusetts constitution that could dramatically increase the income tax on retirees and small businesses.

Julie King Brings Authentic Mexican Cuisine to Boston

This week on JobMakers, host Denzil Mohammed talks with Julie King, immigrant from Mexico and founder of Villa Mexico Café in the financial district of Boston. They discuss the challenges of re-launching a career in a new country. It’s not atypical for an immigrant to start at a lower rung of the economic and social ladder than they previously enjoyed - but it’s a win when they persevere despite the pains, and thrive.

Lifelines for the Untethered: Research to Reach and Recover Homeless Americans

This week on Hubwonk, host Joe Selvaggi talks with Stephen Eide, Senior Fellow at the Manhattan Institute about his newly released book, Homelessness in America: The History and Tragedy of an Intractable Social Problem, in which he asserts that a better understanding of the many challenges facing each homeless individual can lead to a tailored and more durable policy solution to this enduring societal problem.

As States Compete for Talent and Families, Massachusetts Experienced a Six-Fold Increase in Lost Wealth Compared to a Decade Earlier

With competition for businesses and talent heating up across the country, in 2020 Massachusetts shed taxpayers and wealth at a clip six times faster than even just a decade ago. Between 2010 to 2020, Massachusetts’ net loss of adjusted gross Income (AGI) to other states due to migration grew from $422 million to $2.6 billion, according to recently released IRS data now available on Pioneer Institute’s Massachusetts IRS Data Discovery website. Over 71 percent of the loss was to Florida and New Hampshire, both no income tax states.

Property Crime Rates and Motor Vehicle Theft in Eastern Massachusetts Cities

0 Comments
/
An article published in May by WBUR shined a light on the recent…

Empowered or Exploited Entrepreneurs: Voters Determine Rideshare Drivers’ Fate on November Ballot

0 Comments
/
Hubwonk host Joe Selvaggi talks with communications expert and cofounder of South & Hill Strategies Lizzy Guyton about what the research on the profiles and preferences of rideshare drivers tells us about the industry, and the possible effects of designating independent contractors as employees.
This file is licensed under the Creative Commons Attribution 2.0 Generic license.

Healthcare Employs More on Cape Cod Than Any Other Sector

0 Comments
/
Despite being a major tourist destination, the largest employment sector on Cape Cod is not related to tourism: it is healthcare!

Daniel Perez Takes Tenacity to Transport

This week on JobMakers, host Denzil Mohammed talks with Daniel Perez, immigrant from Colombia and founder, president and CEO of DPV Transportation Worldwide, based in Everett, Massachusetts. Daniel shares what it meant to tap into his entrepreneurial spirit and become a success, pivoting into healthcare and community service when the transportation sector was impacted by the pandemic, and finding a way to use his fleet for good.

Searching For Space: Massachusetts Real Estate in a Time of Covid

Hubwonk host Joe Selvaggi talks with real estate expert and broker/owner Pauline Donnelly about the disruption and trends created by the Covid-19 pandemic and steps buyers and renters can take to become more informed, prudent, and competitive in the frenzied market of Greater Boston and Martha’s Vineyard.

With Declining Enrollment, Public Colleges in Massachusetts Cut Back Adjunct Faculty Positions

0 Comments
/
The number of adjunct faculty positions is declining at public colleges and universities in Massachusetts.

Mariam Nusrat Takes Gaming to New Heights

This week on JobMakers, host Denzil Mohammed talks with Mariam Nusrat, immigrant from Pakistan and founder and CEO of both the venture-backed Gaming Revolution for International Development and the not-for-profit Gaming Revolution for Inspiring Development, both with the acronym GRID.

Book Reveals How Tax Hike Amendment Would Damage Commonwealth’s Economic Competitiveness

If adopted, a constitutional amendment to hike state taxes that will appear on the ballot in November could erase the hard-earned progress Massachusetts has achieved toward economic competitiveness over the last 25 years and may not result in any additional education and transportation funding, according to a new book from Pioneer Institute, entitled Back to Taxachusetts?: How the proposed tax amendment would upend one of the nation’s best economies, which is a distillation of two dozen academic studies.

Forsaking Massachusetts’s Miracle: Risking Our Future With Past Mistakes

This week on Hubwonk, host Joe Selvaggi talks with Greg Sullivan, Research Director at Pioneer Institute and author of Back to Taxachusetts?, about the link between Massachusetts’s decision to reduce tax rates and a generation-long economic renaissance - and the reasons why new taxes such as the proposed, so-called "Fair Share Amendment" risk taking us back to economic stagnation or decline.  

Massachusetts Tax Revenues Surpass Pre-Pandemic Levels

0 Comments
/
Pandemic recovery and then some! Massachusetts revenues are higher than anyone was expecting, but where is all the money coming from? And what does this mean for the Massachusetts economy?

Yuliya Tarasava Invests In Americans Who Need It Most

This week on JobMakers, host Denzil Mohammed talks with Yuliya Tarasava, immigrant from Belarus and cofounder and chief operating officer at CNote, a platform that helps facilitate investment in financially underserved communities across America.

Study Documents The Design Challenges, Contracting Issues, And Delays Facing New MBTA Fare Collection System

This new study unearths previously unseen communications between the MBTA and its contractors, showing that the MBTA’s efforts to modernize its fare collection system, including allowing payments with credit cards and bringing “tap and go” technology to Commuter Rail and ferry lines, was riddled with technological challenges and difficulties overseeing contractors as early as 2019, culminating in a 3-year delay to the project’s full implementation.