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Beware of tax increases bearing promises

Imagine if Connecticut had 2.5 million people working here. That would mean nearly a million more people at work. What would be different? There would be more jobs to choose from and more options when it comes to shopping, eating or having fun. Some families that moved apart seeking opportunity elsewhere would still be together. Many new people would have arrived, bringing new ideas and opportunity with them.

A million more people working would bring with them a lot of tax revenue, which could pay for roads, bridges, teachers, schools and a reliable safety net. Connecticut could have had this future. Instead it chose another path.

All of this may sound fantastical, but it is only too real. In 1991, Colorado had slightly fewer people working than Connecticut (1.51 million vs. 1.56 million, according to the U.S. Bureau of Labor Statistics). Today, Connecticut has only 1.6 million workers, while Colorado has 2.5 million.

Colorado is a very different state and it may just be an overachiever. But Connecticut has underperformed its neighbors, too. In the past 25 years, employment in Connecticut rose by just 5.9 percent. Massachusetts, New York and even Rhode Island did better, as did the rest of New England and New Jersey. And not just a little better. Two or three times better, if not more.

Over the next week, Connecticut will mark the 25th anniversary of the state’s income tax, which deserves a sizeable share of the blame for the state’s poor economic performance. Since 1960, the 11 states that adopted an income tax saw their share of state and local tax revenue decline, according to data compiled by Arthur Laffer and his co-authors in “An Inquiry into the Nature and Causes of the Wealth of States: How Taxes, Energy, and Worker Freedom Change Everything.”

Think about that. Raise taxes and you end up with slower revenue growth.

Taxpayers know that tax increases aren’t free, but too often politicians forget the cost. Connecticut’s economic underperformance over the past quarter century should be Exhibit A.

The income tax was sold as the solution to many of Connecticut’s problems, but it wasn’t. It didn’t stabilize our finances. Taxes continued to rise over the following years, including two tax increases larger than the original income tax itself. Yet Connecticut is ranked 50th and just ahead of bankrupt Puerto Rico for fiscal condition by the Mercatus Center, among other rather dismal indicators.

The income tax was supposed to come with spending discipline. The constitutional spending cap passed by a margin of four to one, yet lawmakers never implemented it by defining three terms in the amendment. A commission is working to help them do just that.

The suggestion that a tax increase is the prelude to restraint makes about as much sense as a diet that begins with a trip to an all-you-can-eat buffet. It’s not setting yourself up for success. The better approach is to start the discipline now. If, in the beginning, a lot of discipline isn’t an option, start with a little.

These lessons — that tax increases don’t solve problems, that they have an economic cost and that fiscal responsibility is no more glamorous than it sounds — are particularly important right now. The only reality looming larger in Hartford than the upcoming elections are the billion-dollar deficits that will make their presence felt shortly after the results come in.

**Originally published in Tri-Corner News**

Yankee Staff

Yankee Institute is a 501(c)(3) research and citizen education organization that does not accept government funding. Yankee Institute develops and advances free-market, limited-government solutions in Connecticut. As one of America’s oldest state-based think tanks, Yankee is a leading advocate for smart, limited government; fairness for taxpayers; and an open road to opportunity.

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