Connecticut officials have debated for years whether raising taxes on its wealthiest families would prompt them to flee the state.
And while a new analysis from a Washington, D.C.-based progressive policy group found taxes have little effect on where people move, it identified other challenges — such as high housing costs and inadequate investments in education, transportation and other core services — that could make Connecticut less attractive to some.
“Policymakers in states like California, Connecticut, Illinois, Massachusetts, Minnesota, and New York should ignore warnings by anti-government advocates that state taxes are causing massive ‘tax flight,’” the Center on Budget and Policy Priorities’ analyst Michael Mazerov wrote in his tax migration report.
Connecticut officials recently ordered a $500 million state income tax cut, joining many other states that reduced their largest levy.
But Mazerov wrote that tax-cutting states “should harbor no illusions that such a move will stem — let alone reverse — their states’ long-standing net out-migration trends.”
He added that “if deep tax cuts result in substantial deterioration in education, public safety, parks, roads, and other critical services and infrastructure, these states will render themselves less — not more — desirable places to live and raise a family.”
Puya Gerami, director of Recovery for All CT, a coalition of more than 70 labor, faith-based and other community organizations, said, “The millionaire migration is a myth.”
Gerami, whose group released a study earlier this year attacking the correlation between tax hikes and wealthy family migrations, added that “our elected officials can no longer use this now-busted myth as the reason our state’s most wealthy residents and corporations can’t contribute what they owe to fund our communities.”
People are moving less often — and rarely due to taxes
Despite longstanding claims by politicians and taxpayer advocacy groups that people — and the wealthy in particular — “vote with their feet” by moving in response to state or municipal tax hikes, the center found mobility is rare and shrinking even as tax burdens become more disparate state-to-state.
State and local taxes in the 10 highest-tax states in 1990 were 69% higher than those in the 10-lowest states. By 2020, they were 85% higher, Mazerov wrote.
Yet the average household migration, across all states, fell from 3% in the 1980s to roughly 1.5% in this decade.
Why do those people move?
Mazerov cited the U.S. Census Bureau’s Current Population Survey, which found that in 2019 and 2020, 43% of respondents who moved said it was job-related.
The second-largest reason, cited by another 25%, was family.
The remaining 32% cited other reasons including climate, health needs and education.
A 2008 survey conducted by the Pew Research Center found, “When it comes to places to live, Americans like it hot. By nearly two-to-one, the public says it prefers a hotter place to live over one with a colder climate.”
Only 9% of those surveyed selected housing reasons — which could be related to local property taxes — or “other reason,” which also might involve taxes.
CT’s migration rate is middle of the pack
But that’s just a survey of what people are saying. A review of the states with the most outward migration could show more.
The center’s analysis, based on census data from 2011 through 2021, found Connecticut was in a four-way tie for the 19th-highest outward migration rate, averaging a 3.4% annual drop in households.
That means 21 states have either a higher or matching rate.
When it comes to the moving habits of households with incomes topping $200,000 per year, Connecticut’s ranking is worse, but still not enough to make it a national leader.
Connecticut is in a three-way tie for eighth, again with a 3.4% rate.
But Nevada, Alaska and Wyoming — which don’t even have an income tax — all are worse than Connecticut at 4%, 4% and 3.8% respectively.
And the two states tied for the lowest out-migration rates couldn’t be more different in terms of politicians’ expectations.
Texas, which has no income tax and a warm climate that makes it attractive to retirees, has the same 2% out-migration rate as California, which generally is viewed as a high-tax and high-cost-of-living state.
And Florida, another income-tax-free target state for retirees, has a 3.2% out-migration rate that nearly matches Connecticut’s 3.4% — and exceeds New York’s 2.9%.
And while supporters of the tax migration theory point to out-migration rates, they often fail to notice families moving into a state.
Connecticut ranked ninth among the 18 states with highest tax rates in terms of in-migration between 2011 and 2021. While 4,268 households earning more than $200,000 per year moved out, on average over the last decade, 81% of that loss was offset by families with earnings above that threshold who moved in.
Lamont: CT can attract new taxpayers without boosting rates
“To be sure, some individuals may relocate because they think their taxes are too high or consider tax levels in deciding where to move,” Mazerov wrote. “Nonetheless, the evidence shows those cases are sufficiently rare that they should not drive state tax policy.”
But not everyone agrees, including Connecticut’s Gov. Ned Lamont, a wealthy Greenwich businessman who consistently has opposed efforts to raise taxes on the rich to finance tax cuts for low-income households or to increase aid for poor communities.
“‘I don’t want more taxes, I want more taxpayers,’” Lamont told the General Assembly n January during his State of the State Address.
The Yankee Institute for Public Policy, a Hartford-based conservative think-tank, agrees with Lamont.
“The evidence is clear that although people weigh many tradeoffs when deciding on where to live, lower tax states are routinely more attractive destinations,” said Yankee spokesman Bryce Chinault. “The fact that individuals are willing to shoulder the burden of higher taxes to be closer to family, who themselves may be unable to relocate, isn’t a good reason to take more money out of their paychecks.”
Chinault said adoption of the state income tax in 1991 sparked a high rate of migration out of Connecticut.
But there’s more to both sides of that argument.
First, it’s unlikely many wealthy Connecticut residents fled the state in 1991. That’s because while middle-income households faced a big new income tax obligation, Connecticut’s richest families received a huge tax cut.
The state had been taxing capital gains and other investment earnings on wealthy households since the early 1970s. And in 1991 Connecticut taxed capital gains at 7% and dividends and interest at 14%. But once the state income tax was established, all earnings — capital gains, dividends, interest and general wages — were taxed at the same 4.5% rate.
Center: Investing in services will draw more households than tax cuts will
Chris Collibee, spokesman for the state Office of Policy and Management, said the state income tax cut adopted last June was the largest in state history but still didn’t stop Lamont and legislators from boosting investments in K-12 education, child care, housing and social services — all while saving an extra $2 billion to continue to pay down Connecticut’s massive pension debt.
But progressive Democratic legislators say the extra funding for child care, social services and housing was too modest and not enough to counter inflation or too many years of neglect.
And according to the center analysis, the investment in core services — and not the income tax cut — is likely to draw more taxpayers to Connecticut.
Four of the five states that adopted the largest income tax cuts in the past two decades saw “no more than marginal increases in in-migration and/or marginal declines in out-migration in the subsequent years,” Mazerov wrote.
In 2012, Kansas Gov. Sam Brownback drew national headlines with a 29% cut in the top state income tax rate (from 6.5% to 4.6%.) It was repealed in 2017 amidst severe state government fiscal problems.
And the analysis notes that by 2017, the state’s out-migration had worsened by 2.8% while households moving to Kansas had declined by 3.6%.
New Jersey adopted an 8.97% income tax bracket in 2004 for households making more than $500,000 — which was 2.6 percentage points higher than the previous top rate.
The out-migration rate for taxpayers in that bracket did increase — by just one-half of 1%. According to the center analysis, the tax hike resulted in a net loss of one out of every 2,000 millionaires.
But a ranking Republican on the Connecticut legislature’s tax-writing Finance Committee, Rep. Holly Cheeseman of East Lyme, said the loss of any wealthy taxpayer — in a rich state — can have a huge impact on revenues.
And the numbers bear her out.
According to the state Office of Policy and Management, while millionaires comprised 0.7% of all income tax filers, they accounted for 30% of all income tax collections.
But while looking for opportunities to ease tax burdens, officials also have to try to lower high utility costs and prioritize core services, she said.
“We have to look at all the reasons people move,” she said.
High housing costs could stop households from moving
One of the big obstacles to moving, according to the center analysis, is high housing costs, which is a challenge for Connecticut.
The analysis found Connecticut ranked 11th-highest in 2019 median single-family home list price at $360,000.
Of the 11 highest-ranking states, seven faced a net migration loss over the past decade, meaning households leaving each respective state exceeded those moving in.
One of the best ways to attack that problem, progressives argue, is for the state to invest more in higher education, workforce development, and affordable housing next to employment clusters.
Longtime Coventry Town Manager John Elsesser, who is retiring this week, said Connecticut won’t be poised to make large-scale investments until it reforms state and municipal finances. Specifically, it must shift more service costs off municipalities and the property tax base and onto the state.
“Nobody’s willing to address the big elephant in the room,” said Elsesser, a member of 1,000 Friends of Connecticut, a progressive policy group that favors higher state taxes on the wealthy to finance tax reform.
Rep. Josh Elliott, D-Hamden, joined 34 other lawmakers this spring to form a new tax equity caucus to make a similar argument. They also say higher taxes on the wealthy could ensure that state funding for local aid, health care, education, social services and other core programs won’t stagnate as they did for much of the past two decades as Connecticut has grappled with rising contributions to its pensions and payments on its bonded debt.
And while many in both parties want to trumpet the state income tax cut that passed unanimously this year, Elliott and others have said they fear officials will try to peel back the modest programmatic investments made this year if the global economy slips badly in 2024.
“This emphasis on cutting taxes is just going to put us in a hole in the future,” Elliott said.