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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? ”

Toni Boucher

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 percent.

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 and 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 percent in 2016. As a result it will reduce its 5.49 percent income tax to 5.24 percent 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 percent.
  • Georgia is also reducing income and corporate taxes in 2019 as a result of strong revenue growth rate of 4.5 percent.
  • Tennessee only taxes interest and dividends and reduced tax rates from 6 to 3 percent as its population grew 6.7 percent from 2010-2017 and revenues increased 2.4 percent.
  • States with no income taxes like Florida, Texas and Nevada had revenue growth rates between 3 to 7.6 percent from 2015-2016 due to population increases of nearly 2 percent.

Connecticut, with a top income tax rate of nearly 7 percent, has had zero percent population increase from 2010-2018 and flat revenue growth from 2013-2016.  Alarmingly, its job growth rate has dropped nearly every year since 2011 and 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 percent 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.

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15 Comments

  1. Well said however “our” finest legislation body will not listen. Actually they are going to take even more money out of our pockets. Well done CT Democrats. Well Done. Long live the K. Malloy and Lamont

  2. A completely sane, well reasoned argument on the CT Mirror…only possible on April 1 but thanks anyway.

    Meanwhile Toni’s replacement is very excited about adding tolls and banning plastic straws.

  3. A clear and simple message ignored by Representative Aresimowcz, Senator Looney, Governor Lamont and all those who voted for them.

  4. This starts with a false premise: Taxes are NOT a “necessary evil” which is based in our prevailing culture of the patriarchal world order of status, privilege, entitlement, domination, power, control, and wealth. Calling them a “necessary evil” is about insecurity and fear of losing position and power and abdicating our responsibility for and accountability to one another as human beings and our collective quality of life.

    In truth, taxes are the mature sharing of financial resources for the universal dignity and well-being of all.

  5. I agree with Ms. Boucher. Where are the ideas to cut spending to at least partially offset state budget deficits caused by exploding state retirement liabilities and debt service? Why do we have to add to the misery by enacting social engineering legislation like paid sick leave, which, together with tolls, are regressive and hurt middle class taxpayers? Why are some legislators looking to extract more taxes from the “rich” when they already pay the lion’s share of taxes and are the most mobile of us? Why are we doubling down with one party rule in Connecticut?

    Connecticut has entered a fiscal death spiral. Don’t look now, but it isn’t just the “rich” who are leaving. Retirement in Connecticut doesn’t look sustainable for alot of folks anymore. Look for things to get worse- much worse- before they get better.

  6. Exactly!, I left two years ago. I liked CT but did not like paying all those taxes and costs that are constantly going up to live there, and dealing with a permit or license for everything (asking and paying for permission).I would return if the taxes matched what I pay now. 2200sq ft house on 8 acres/house tax $520.00 yr. No income tax, no car tax. Guess I won’t be moving again.

  7. Boucher needs to look at data more closely. Sales tax collections, relative to household consumption, are down over the last several years a couple hundred million; income tax as a share of household income are down more than $400 million. In aggregated, sales and income tax collections, measured as a share of household consumption expenditures and as a share of total income have declined by more than $700 million. {Based on Federal data from the Bureau of Economic Analysis.} The reality is that we don’t really understand what is happening because CT has such poor data–for example, the Secretary of State, when firms register every year, doesn’t collect ANY information except the address and the legal form–we can not chart business dynamics (firm creation, growth, and decline) and know very little about households. We generally fly blind–and so we simply have no basis to make the kind of assessment that Boucher is offering.

    1. Your attention to detail and statistics is commendable. I’d suggest talking to business owners running a manufacturing company with 50+ employees as a starting point. I know a few. If the cost of relocating the company wasn’t so prohibitive they would move in a heartbeat. They always site regulatory burden and total cost in CT versus other states.

  8. “Homes values are down by nearly 50 percent in Fairfield County.”???? What planet is she living on?

  9. As I have often commented, such commentaries often do not have a good grasp of the data (e.g. tax revenues as a share of income and consumption are down significantly), but completely ignore the reality that while our neighboring states with their equally high taxes are doing well, with economies now well above the levels of 2008, CT’s economy has shrunk in real terms and total employment is still well below the level of 2008. Private sector jobs have recovered–but they have typically been low quality jobs–consistent with the shrinkage in the state’s real output (adjusted for inflation).

    Where is the robust discussion of why CT has done so poorly over the past decade? The absence of economic growth has made the fiscal situation measurably worse.

  10. Great article. Yes I believe it is true, CT is past the tipping point and the latest toll proposal is just another nail in the coffin. From a legislators viewpoint what are they to do? Expenditures exceed revenue and they must pay for all the pensions. That is the crux of the problem. Retiree pensions and healthcare are draining the states coffers. Government will never look in the mirror and say we are the problem. The State used to serve the people, now the people are serving the state. I believe the legislators just approved another union deal with 3.5% pay increases for people in the judicial system in the State. Their heads are in the sand and they must think it is 1995 all over again. Question – what is going to happen to state revenues when the economy turns down again? I do not think we have successfully eliminated the business cycle.

  11. This article is not up to CTMirror standards but it does point out an obvious fact: the state is in deep trouble financially. A lot of people we know have plans to move or have already left. Our former neighbors on either side of our Hamden house moved. Both of them told me in so many words: “this state and town is nuts”. One lost money on their home the other had a modest gain. When I ask Mike Dagastino about the total tax burden in CT he responds “what expenditures do you want me to cut?”. Josh Elliott is hell bent on legalizing weed when he isn’t ranting about the top 9.9% of income earners or vaccines. The mayor of Hamden just proposed another mil rate increase. (We currently pay $12,000/year for a 2000 sf home.) They show little knowledge of the CT Commission report published last March. My wife and I will be moving as soon as she retires. We’ve lost confidence in our representatives.

    1. I share your frustration. Many of us will vote with our feet since our ballot box votes have no effect. I predict quite an exodus of middle class retirees, many of whom cannot afford the unrelenting tax increases by the ruling class in Hartford. More troubling for the state is that the folks who can afford to live here are also being driven out by circumstances such as you describe. This will not end well for Connecticut. The day of reckoning is coming which was created by unfunded /unsustainable state worker retirement/healthcare liabilities and crushing state debt. It might take a few more budget cycles but its coming. I hope not to be here when the budget finally blows up.

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