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Opinion: Is Connecticut at a tipping point?

Taxes are a necessary evil. They are the cost of running our government.  However, raising taxes too much ultimately reduces the total value received.  Many economists believe the paradox that the more you tax, after a certain point, the less total revenue you collect thus reaching a tipping point.  Legislators should consider “How many taxes are too many; have we reached a tipping point; when do more taxes create diminishing returns and result in lower total tax revenues? ”.

Data strongly suggests Connecticut has reached or exceeded a tax tipping point after enacting historically high back to back tax increases in 2011 and 2015. This resulted in flat total tax revenues from 2013 to 2015.  In 2016 revenue actually fell 1.9%.

Despite these compelling facts, a newly elected legislature is considering a tsunami of new taxes: tolls, state wide property tax, replacing the local car tax with a state-wide car tax, millionaires’ tax, home heating oil tax, a second electricity tax and legal, accounting and veterinary services taxes.

Legislators are even proposing taxes on sugary drinks, plastic bags, groceries, textbooks, non-prescription drugs, alcoholic beverage bottles, haircuts, dry cleaners, real estate, boat storage, interior design, newspapers/magazines, waste collection, parking, renovations and repairs, car trade-ins, helmets, car seats, camps, sports programs, swim lessons, licenses for cats.

Many Connecticut residents are fleeing to states that are embracing the concept that if you tax less you will attract new taxpayers and thereby revenues. These states face the same daunting task of providing public safety, education, transportation and social services; however, they have chosen to reduce tax rates to stimulate their economies and have successfully increased their total tax revenues.

  • North Carolina revenues grew 3.8% in 2016. As a result it will reduce its 5.49% income tax to 5.24% in 2019.  It also will reduce corporate tax to the lowest in the nation at 2.5% and will repeal it as more businesses move in and revenues increase.
  • New Hampshire, a state with no income tax, is reducing corporate taxes two years in a row as a result of revenue growth of 2%.
  • Georgia is also reducing income and corporate taxes in 2019 as a result of strong revenue growth rate of 4.5%.
  • Tennessee only taxes interest and dividends and reduced tax rates from 6 to 3% as its population grew 6.7% from 2010-2017 and revenues increased 2.4%.
  • States with no income taxes like Florida, Texas and Nevada had revenue growth rates between 3 to 7.6% from 2015-2016 due to population increases of nearly 2%.

Connecticut, with a top income tax rate of nearly 7%, has had zero % population increase from 2010-2018 and flat revenue growth from 2013-2016.  Alarmingly, its job growth rate has dropped nearly every year since 2011and is rapidly decelerating. Connecticut remains the only state in the Northeast that has yet to recover jobs lost in the last recession.

Lawmakers should consider that other historic tax increases stalled economic recovery, reduced revenues and lowered property values as people and jobs left.  Homes values are down by nearly 50% in Fairfield County.  Once the tipping point is reached, further taxation will accelerate a downward spiral.

Since the 2018 election, the tax floodgates have opened. A new progressive caucus has set its eyes on businesses and the highest income taxpayers who already carry the lion’s share of the tax burden.

The new administration and legislators should follow the example of growing states that are reducing taxes, not increasing them.  This is a proven way to grow the tax base and generate the revenues needed to fund essential services such as public safety, education, transportation and social services.  Connecticut needs to breathe life back into its economy and tip the scales back in favor of prosperity.

 

Toni Boucher is a Connecticut Businesswoman and former Senate Vice Chairman of the Finance, Revenue and Bonding Committee of the Legislature

 

13 comments

Mike Mushak March 24, 2019 at 9:18 am

Hello Toni, guess what?

No one is going to move here if they are stuck in traffic every day on crumbling highways or stuck on train
platforms waiting for trains that are delayed or canceled.

What is Toni Boucher’s GOP plan she’s pushing to fix all that infrastructure? Just borrow billions from future generations to pay for it, just like the state did with pensions for decades which got us in the mess we’re in. In other words, Toni Boucher and the Republicans want to repeat the same mistake twice!

No thanks. The Republican solution to fixing our mess is just more voodoo economics like we see in the Trump Administration, which is ballooning our debt and increasing pain later for minimal short term benefits, with no plan for investing in the future. Sorry, we’re not buying it.

And didn’t Republicans promise America an infrastructure plan when Trump got elected? Of course they did. They controlled the government for two years and ignored it! If the Republicans had delivered on their promise we wouldn’t need tolls, but they failed the country and they failed CT. They even hit us with a huge tax bill that they called a tax cut. They lied!

Why should we trust anything the Republicans tell us at this point? They support a corrupt president with corrupt policies that are destroying the nation, and then dare to lecture us on fiscal responsibility?

The Democrats are clearly the party of fiscal responsibility now, as the Republicans have abandoned all their traditional principles as they follow a morally corrupt self-serving president who is helping his country club billionaire friends get richer at all our expense.

Sorry Toni, no one with a brain is buying your out-dated medicine any more.

We need tolls now, not more debt!

John Levin March 24, 2019 at 9:33 am

Yeah, well no one likes paying taxes. And taxes are a pretty easy thing to dislike and criticize, like skin cancer or Type 2 diabetes.

Ms. Boucher – you’ve offered a lot of ink decrying taxes, yet you’ve failed to address the real problem: our state government has bills to pay. You don’t offer ANY solutions. Not one. You don’t identify a single spending program you would eliminate, nor do you identify any taxes that you think are appropriate for providing state revenue. I think you’ve taken the easy way out, maintained your visibility as a former elected legislator, but offered no useful solutions. Further, your list of states with lower tax policies is highly selective, and omits the Kansas disaster:

https://www.forbes.com/sites/beltway/2017/06/07/the-great-kansas-tax-cut-experiment-crashes-and-burns/#521852bf5508

What a bunch of baloney. Our state needs leaders who will tackle the job of paying the bills and helping the state’s people. I, for one, am happy that Will Haskell can represent your former state senate district and do that job.

Steve Benko March 24, 2019 at 9:44 am

It seems we’re back to “Voodoo Economics,” as President George H.W. Bush called it, the starry-eyed belief that cutting tax rates will magically increase revenues and solve all our problems. This is an article of religious faith, not economic science. Yes, Connecticut has high taxes and economic stagnation, but correlation isn’t causation. Many factors enter into it, such as the lack of a big city like New York or Boston which attracts millennials and new-economy businesses, or warm weather to retain our retirees in the face of aging demographic trends. There are parts of the country with low taxes and poor economies, such as Alabama, and high taxes with good economies, such as New York, Boston, and Silicon Valley, as well as the reverse. And places where the low-taxes-will-solve-everything-by-stimulating-the-economy theory has been tried with disastrous results, such as Kansas. CT state tax revenues plummeted during the great recession and started rising again as the economy recovered in 2011-13, even while tax rates were rising, then began stagnating, then jumped in 2018 as the result of an effective state TAX INCREASE put into effect by the federal government by limiting deductions, thus increasing reported AGI which is the basis of the state return. We have problems, but we need to solve them with hard-nosed practical solutions (which could include selective tax cuts if we can develop data showing specific taxes driving specific taxpayers out of state), not with pie-in-the-sky theories and ideologies which don’t stand up to scientific analysis of the available data nationwide.

AL March 24, 2019 at 10:32 am

Connecticut lacks honest government.Clean up government and the rest follows. There is no revenue problem in this state.There is a spending problem. Where local rule is strong, government generally works well but the state is set up with a top down failed model that sets town against town with everyone clawing for an ever shrinking piece of the pie. I do not know if cutting taxes will work but we definitely know that raising them has not worked.
A single party rule absolutely fails and the legislature has run this state into the ground for decades.
Look at Stamford…a proposed 4.4% property tax increase…for what? To pay over 1017 “workers” in excess of $100K a year plus benefits and pensions with over 38 making in excess of $200K. It works if one is on the receiving end. Not so well if one is struggling to pay their taxes.
The author,and others,lost her position in Hartford,probably because the voters are desperate for change of some kind not because she did a horrible job.Those districts who voted out seasoned voices of reason may well regret their replacements…six hundred votes got Alex Bergstein elected and her first order of business was tolls. Martin Looney and his cabal in Hartford now have free rein to continue to abuse the public trust. Eight years of a completely failed Malloy administration (both “wins” extremely narrow and questionable) put this state decades behind the rest of the country. Hopefully Ned can put us on a course towards recovery but it is not looking good,so far.

Michael McGuire March 24, 2019 at 11:30 am

@ Benko – regarding big cities with high taxes. That is true for now – but businesses are leaving those areas as well- California is a great example – mass outmigration of the middle class. But the big issue is CT has a subpar economy. NY and Boston can get away with that….for now. But as integration in the national economy increases so will money’s flow to states with the lowest cost of living – for both business and citizens. None of this happens quickly. It takes decades – watch the trend on a decade by decade basis for clarity. Then ask yourself how is CT, or CA, IL, NJ or NY doing on the quality of life for Small business and middle class population trends. Even wealthy Dems are voting with their feet.

Rationalize all you want but the writing is on the wall. Maybe we should scale back CT social services to what they were in 1990. That might be a logical starting point on the cost cutting side to stop the bleeding.

As a small business owner I am now actively planning for moving my business out of CT in the next 3-5 years. There goes me and the 6 professional jobs we provide. Sadly, I am not alone, CT was a great place until it gave away more than it should have.

Piberman March 24, 2019 at 11:38 am

As long as major business regards the CT controlled CT government as lacking “competence” and CT ignores its major depressed cities CT’s most able citizens will exit and the the State will have a dim future of ever higher State income and local property taxes supporting its largest industry – its public Unions. Our new Governor lacks a reasonable plan to securing relief as did previous Governors. So we know our future. A failing State.
Those who think otherwise ought ask major business why they avoid investing here.

Mike Mushak March 24, 2019 at 12:51 pm

@Michael McGuire: Best wishes wherever you end up. Florida? South Carolina? Alabama? All low-taxed states, with of course bad records for education and healthcare and infrastructure and environmental protection. Lots of Walmart’s and Dollar Stores however.

I just wonder why you would abandon ship in 3-5 years, as you described, after trying hard to scuttle the Wall/West Plan, which the rest of us who are committed to Norwalk’s future are relying on to draw new businesses with high paying jobs and residents to Norwalk.

Im just curious, how long have you had this plan to move out of the state? Was it before you tried to kill the Wall/West Plan?

Clearly you won’t be around for the opening of the Wall Street Train Station.

We’ll send photos!

Bryan Meek March 24, 2019 at 4:23 pm

Post WW2, Bridgeport was amongst the wealthiest cities in the country. It took the kleptocrats a few decades to drain its resources and has never really recovered. We have the same type of rule now not just in our cities (which are some of the most impoverished in the country), but also our towns. Anyone who thinks Westport can’t turn into Bridgeport hasn’t studied history. Once Norwalk goes, the rest will start falling. The exodus of wealth is real and probably being underestimated right now. Our only way out of this is Chapter 9 protection, but that will have to come from the courts. Congress (certainly in it for himself Himes) will never do any favors for CT’s irresponsibility.

Ron Morris March 24, 2019 at 6:35 pm

Let us not forget that it was the twice convicted felon Republican Rowland that created this mess. He made pension promises that he could not keep and we are sill paying for it. You got to love the right wing cons they find fault but never not even once provide solutions.

Ron Morris March 24, 2019 at 6:44 pm

So tell us Michael McGuire what social service do you suggest that we scale back.
Maybe let people be homeless? Maybe let people starve ? Maybe let children go hungry? Maybe take away health care from the poor? Tell us which one should we take away first?

John ONeill March 25, 2019 at 4:56 pm

IF voters don’t recognize what Democrats have done to Connecticut in last 40 years, they deserve what the get — (see Bridgeport/New Haven/Hartford)

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