It is a genuine law of economics, because it is a central law of human nature: if you tax something, you get less of it. A necessary corollary: most taxes bring in less revenue than predicted because people modify their behavior to avoid the tax. Connecticut’s elected officials have been ...
Connecticut on the naughty list: we’re among the nation’s most-taxed
This time of year, children are told that Santa Claus is making a list and checking it twice to find out who has been naughty or nice. However, Santa isn’t the only one who makes a list every year. Leading experts and organizations across the country also rank states by their public policy. In this ongoing series, we will see which “naughty” lists Connecticut landed on and make small suggestions to help the state be a little “nicer.” Check back every day from now until Christmas for a new entry!
When it comes to taxes, Connecticut is just plain naughty. The state’s personal income, corporate income, sales, and property taxes are all among the highest in the nation. Additionally, to fuel a multi-decade habit of reckless spending, Connecticut burdens both individuals and businesses with all sorts of fees, surcharges, and the like. It would be nice if lawmakers and public officials worked to control spending enough to enact a nicer tax code.
As one of the nation’s leading tax-centric think tanks, the non-partisan Tax Foundation tirelessly researches state tax policy. The organization publishes rankings and analysis like the State Business Tax Climate Index, Tax Freedom Day, and the State-Local Tax Burden Rankings.
Needless to say, the Nutmeg State fared poorly in all of them this year.
Instead of being nice to businesses, Connecticut ranked 43 for its business tax climate, which measures corporate, personal, sales, and property taxes, as well as the unemployment insurance tax. The state’s highest measure was for unemployment insurance taxes, where it ranked 21, while property taxes, its worst performer, were 49. In a recent analysis of Connecticut, the Tax Foundation cited, the state tax code’s complexity, in addition to its high rates, make it “unattractive for businesses.”
Instead of being nice to residents, Connecticut imposes the second-highest combined state-local tax burden in the country (given the most recent necessary data available, FY 2012). Besting only New York, Connecticut managed to be more onerous than California, New Jersey, and Illinois. Meanwhile, Massachusetts and Rhode Island enjoyed competitive rankings of 12 and 9, respectively.
All of this culminates in perhaps the most depressing metric: Connecticut’s Tax Freedom Day. Tax Freedom Day is the day of the calendar year on which the government has collected enough revenue to pay its bills for the year. For the sake of clarity though, it should be noted that this metric takes federal taxes into account, and it should also be remembered that high levels of income, in addition to high rates, can push a state’s Tax Freedom Day to later in the year.
That said, Connecticut had the latest 2016 Tax Freedom Day of the 50 states: May 21.
One obvious way to get on the nice list is by reducing spending sufficiently to allow for tax cuts, which will in turn grow the state economy and help revenue levels stabilize through increased commercial activity. However, even short of necessary fundamental fiscal reform, the state can take steps to make low impact, or revenue neutral, corrections to the state code.
Reducing complexity, removing duplicative surcharges on corporations, and weaning the state off creating special incentive packages for the sake of economic development are all simple steps that can be taken immediately. A special deal may be nice for one company, but that leaves the rest of Connecticut’s businesses left to subsidize their own competition.
Let the emblem of the legislative session, and of the last decade of Connecticut’s governance, be this new “mansion tax.” It was slipped into the budget in the last minute. It wasn’t properly vetted. It sends terrible signals to would-be entrants to Connecticut, while warning Connecticut’s current residents to get the heck out. And ...