Connecticut falls far below the national average when it comes to the growth of millionaire households, a statistic that impacts the state’s tax revenues.
According to a report released this September by the Empire Center for Public Policy, Connecticut is ahead of only Louisiana in the growth rate from 2010 to 2015 of additional households with $1 million or more in pre-tax annual income. Legislators and researchers interviewed disagreed over the cause of this slow growth but unanimously said that it would negatively affect tax revenue.
State Rep. Dave Yaccarino, R–North Haven, cited higher taxes as one reason Connecticut has seen a decreasing population in the last 10 years. The income tax has been raised twice in the last six years, he said, which has led to residents moving to cities with higher paying jobs such as New York City, or states with lower taxes like Florida.
Yaccarino said that the loss of tax revenue hurts the social fabric and contributes to a state deficit, adding that the loss of millionaire households would impact important programs like mental health and education.
“When we lose wealthy people — they donate a lot of money, they pay a lot of taxes, they’re hopefully good neighbors, they’re creating jobs — it’s a ripple effect,” Yaccarino said.
Marc Fitch, a reporter for the Yankee Institute for Public Policy in Hartford, agreed, saying Connecticut’s comparatively high tax rate has contributed to the loss of high-income earners. Connecticut used to be a major state when it came to growing wealth, Fitch said, but over the years it has failed to play up to its strengths like great suburbs and schools. Meanwhile, other states have taken advantage of low tax rates to attract more people.
He explained that the state’s revenue stream is highly dependent on high income earners, which can make it volatile.
“As we lose these high income earners, our tax revenues are going to be hurt, and we’ve already seen that this past year,” Fitch said.
John DeStefano Jr., a former mayor of New Haven and a lecturer at the University, echoed a similarly foreboding sentiment.
“Connecticut’s economy is collapsing,” he said.
He pointed to the state’s budget crises, corporate relocations out of Connecticut, an inability to regain jobs lost during the recession and a population loss over the last three years as evidence.
DeStefano explained that Connecticut’s lack of a well-planned, targeted strategy for economic growth has prevented it from aligning its resources and priorities, resulting in a scattershot and ultimately futile effort in trying to distinguish itself from neighboring states. At the same time, businesses have been relocating for various reasons, such as lower tax rates and richer workforce talent.
According to DeStefano, Connecticut’s shrinking revenue base is compounded by legacy costs such as state public employee pension and healthcare retiree costs that will rise exponentially, like a “hockey stick.” To solve these issues, Connecticut must increase productivity, educate the workforce, reset its legacy costs, review its tax structure and most importantly, invest unrelentingly in job creation, he said.
DeStefano added that Connecticut could improve by capitalizing on its geographical proximity to New York and honing its competitive edge in financial and insurance services, life and bio sciences and defense industry manufacturing, all of which import wealth into the state.
But Alissa DeJonge, vice president of research at the Connecticut Economic Resource Center, offered a more optimistic evaluation of Connecticut’s economy.
“I think that there is some concern for the future, and we’ve heard some anecdotal evidence that some millionaires are considering moving elsewhere because of Connecticut’s tax structure, but it’s not panning out in the data just yet,” DeJonge said.
DeJonge noted that since Connecticut already has a higher share of the higher earning households relative to other states — about 3 percent of the nation’s millionaire households are in Connecticut — the state does not have as much room for growth. She added that the loss of millionaire households would definitely have a negative impact on state revenues, as counties with wealthy households like Greenwich contribute a very large share of the state tax revenue.
Connecticut was home to nearly 11,500 millionaire households in 2015, according to the IRS.
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