Connecticut - On the Road to Oblivion

The great and beautiful State of Connecticut appears to be heading down the road with California, New York, and New Jersey. The road to oblivion: increased taxes, greater spending, increasing deficits, losing population, losing jobs, and disincentives to investors.

I lived in Westport, Connecticut for 4 years in the 70’s when the state had no income tax, balanced its budget every year, and became one of the richest states in the Union. Such was the case for 200 years until 1991 when Governor Lowell Weicker pushed the first ever personal income tax at 4.5%, saying it would remain flat thereafter. Thus started the era of excessive spending and pay raises for the unionized state government workers. Such is the case when a state gets more revenues, it starts spending on things it would never conceive of in the past.

Quickly, after the on-set of the income tax the state went to the top 10 in expenditures per capita. There has been a long and slow exodus of jobs, people, and businesses and Connecticut has generated no net new jobs in the past decade. During this time the nation added 22 million jobs, while right next door, Wall Street was booming. Over the last decade the state has lost population every year but one.

In addition, the state income tax was raised to 5.5% and now the Governor, Jodi Rell, has proposed a $1-billion+ income tax hike by raising the top rate to 6.5% for high income individuals in order to close the expected $8.5 billion deficit. History shows that when you have a heavy reliance for tax revenues on top income filers, tax collections will become very volatile and these swings will make governing very difficult.

The Governor also plans to eliminate the state’s death tax which has exacerbated the loss of wealthy seniors to states with no estate tax. This maybe a good idea but she also plans to use the money generated from the income tax increase to cut the sales tax, which is a bad idea. Again, history shows that when you cut the consumption tax but raise taxes on investment and small business, this is a formula for losing more jobs.

I think if the Governor just looked at what is going on next door to her in New York and New Jersey she would get some religion. Millionaires just evacuate when you focus on them and states like Florida, Texas, and Nevada benefit. Connecticut may not be as bad as its sister states yet, but like them, it certainly looks like it’s on the road to oblivion. At least California is beginning to wise up.