Connecticut Income Tax: The Decline of the Nutmeg State

The year 1991 marked the beginning of a Connecticut income tax, making Connecticut the last of 11 states to implement an income tax in the past 50 years. In its first year of implementation, the highest tax rate was 1.5 percent, according to The Wealth of States. However, in less than 25 years it has grown to 6.7 percent along with a flat corporate income tax rate of 9 percent (The Tax Foundation reports this as 5th highest nationally). What effect has this had on the state as a whole?

Loss of Population and Revenue

The introduction of the income tax has done little to help the state. From five years prior to Connecticut’s income tax adoption to 2012, the gross state product (GSP) declined by 20 percent, while the state’s population declined by over 198,000 individuals to states such as Florida (almost 68,000 individuals, alone). These individuals brought their revenue of $7.4 billion with them, declining total state and local tax revenues by 4 percent.

High Out-Migration

Connecticut has consistently ranked among the highest of the 50 states for outward migration ever since it implemented an income tax. In fact, a 2013 Gallup poll shows that almost half of all residents of the state want to leave.

During the first years of the Connecticut income tax, Connecticut was the third highest for mass emigration. People were leaving exponentially, significantly more so than those who were moving in. Population numbers improved slightly from 2000 to 2001, but that didn’t last. The state soon returned to its top-10 status for emigration, and it remains high today.

One state’s loss is another’s gain. Though this creates a “race to the bottom.” As individuals leave, tax rates rise per capita, creating a vicious cycle.

Declines in Public Service

If you gauge a state based on its public services, Connecticut became a much less attractive place to live after implementing its state income tax. The Wealth of States reports the following statistics on the change in Connecticut’s public services since the early 90s:

• Regarding education, Connecticut raised its 4th grade reading scores by 0.85 percent, but its 4th and 8th grade math scores declined 2.72 and 2.45 percent, respectively.
• Connecticut witnessed a decline of 17.7 percent in medical workers and hospital employees.
• Violent crime increased by 3 percent, although property crime saw a 20 percent improvement.
• Poverty has increased by 14 percent.
• The state highway system only improved by 2 percent.

Although Connecticut has seen some improvements in a few public services since implementing its income tax, the state has experienced greater declines overall. In short, Connecticut is in a worse condition today than it was before it passed a state income tax. With other states embracing new tax reform policies, Connecticut would do well to imitate, innovate, and reform before more individuals take on the title of “Connecticut expatriate.”

[cf]skyword_tracking_tag[/cf]