Packed Up and Ready to Go – Those Who Can, That Is
In a recent piece, the CTMirror addressed the persistent issue of outmigration of the affluent – and whether it was a matter of fact or myth. With some reluctance, the authors concluded what Yankee has repeatedly demonstrated: that many of Connecticut’s wealthy – and even its not-so-wealthy – are packed up and ready to go if the state’s fiscal situation deteriorates, while many others have turned over their keys and had their mail forwarded long ago. What the Mirror might also have asked is this: what exactly are state policies doing to those who cannot afford to go?
On December 17, in the newest installment of an ongoing series, Keith Phaneuf and Clarice Silber asked, Millionaire with a Suitcase: Fact or Myth? After weighing both sides of the question, the apparent conclusion was that, indeed, Connecticut is facing persistent outmigration of the affluent.
Even as the piece’s authors pointed to the increased speed of the tax-increase cycle, they might likewise have noted that Connecticut’s political leaders have long failed to reform past promises to government workers to conform to current fiscal realities.
Refusing to address difficult facts in an equitable way increases, year by year, the already-heavy mortgage of the future by the past. And understandably, people aren’t willing to stay around to help pay ever-increasing bill as the crisis grows.
This is hardly news. Local newspapers have been reporting since 2016 that two of Connecticut’s billionaires had fled the state following the 2015 tax increases, and that others were poised to leave if conditions continue to deteriorate. State leaders know only too well that actual revenues from the 2015 personal income-tax hikes fell far short of expectations, suggesting a material exodus of taxpayers who would otherwise have been affected by this increase in the top income-tax rates.
Nor are individuals and families the only taxpayers heading for the hills.
In 2015, General Electric and other corporations warned the state that if it raised corporate taxes again, they would leave or cut back significantly on their Connecticut presence. The state raised the taxes; they left. Others, including Hallmark, RBS and Rogers Corp. followed in downsizing or leaving – even corporations, like Alexion, who had been favored with tax-money subsidies to try to get them to stay. As a result, the corporate tax increases of 2015 brought in only about two-thirds as much as had been forecast.
Nor are the wealthiest taxpayers, individuals or businesses the only residents who have signaled that their tolerance for tax increases is not infinite. As the state’s newly completed OpenPension website reveals, nearly a quarter of the state’s government-worker retirees move out of state after they retire, as evidenced by the addresses to which their checks are sent.
If a significant part of these workers – who owe their very pensions to those remaining in Connecticut to pay its ever-higher taxes – are unwilling to stay here, it’s reasonable to expect a similar or greater flight among private-sector retirees.
The exodus is real, as the Yankee Institute itself demonstrated in 2015 in the wake of the 2011 tax hikes. And, as Phaneuf and Silber recognized in their piece, it’s getting worse.
It defies logic to assume that another round of tax increases will do anything but drive away even more of the state’s tax base, and further deflate the only economy in the region that still has not recovered from the Great Recession.
Connecticut continues to struggle; it holds the grim distinction of having suffered through the most anemic housing-price recovery in the country. These are twinned with some of the highest property taxes in the country. It bears some of the highest energy and utility costs of any state in the country, as well.
All of this makes Connecticut an expensive place to live and getting more expensive. And it makes it an incredibly expensive place to save for retirement. The high cost of living makes it hard for middle- and working-class earners to save, while the same state fiscal mismanagement that drives net out-migration high and depresses property values deprives residents of an indispensable element of a comfortable retirement: home equity.
As a result, Connecticut has an increasing pool of residents who can’t afford to stay, can’t afford to leave, and can’t afford to retire. That is a recipe for unhappiness – and for unfairness.
Given that the Phaneuf and Silber article was the fifth in a series explicitly dedicated to looking at the problem of “Extreme Inequality: Connecticut’s Wealth Dilemma,” it’s worth considering what the impact of tax-driven flight from Connecticut has been and will be on those presumably hardest hit by “extreme inequality:” those who cannot afford to leave, and so are left to pay the ever-escalating tax burden as others leave for better-run, less-expensive jurisdictions.
As more and more of the highest-paying taxpayers leave Connecticut, the state becomes less “unequal,” in traditional wealth and income terms, but that hardly makes it a better place to live. Because what’s left are people who can’t afford to leave or retire being taxed into penury to pay for the retirements of others, many of whom can and do leave.
That seems a far more pernicious inequality, and a much uglier fight.
Perhaps in looking for inequities, Phaneuf and Silber are looking in the wrong places. Perhaps “extreme inequality” in the traditional sense is amongst the least of Connecticut’s worries.
Our greatest fear – one we should all be working together to fight – is a Connecticut in which notional inequality has been reduced, but practical disparities increased, because of the chasm between those who demand comfortable retirements and those who remain who are unable to pay for those retirements, or even for their own.
That affordability crisis appears to be the real clear and present danger for Connecticut.