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Alas, Connecticut's fiscal crisis has reached a new low, bringing the state and its policymakers closer to the day of reckoning.
After hoping to avoid tax increases this legislative session, news that the state's projected deficits over the next two fiscal years grew by another billion dollars — to about $5 billion — has some Democratic leaders eyeing tax increases to balance the budget.
And despite Connecticut's precipitous drop in income tax revenues, particularly from high earners, some lawmakers — laughably — want to once again raise tax rates on the wealthy. That may be a popular political move among liberal Democrats in the state and their state employee union supporters, but it will further weaken Connecticut's economy, prolonging and potentially exacerbating the crisis in the long term.
This isn't to say our state's wealthiest residents can't afford to pay higher taxes. Connecticut's top income tax rate of 6.99 percent for joint filers making over $500,000 is lower than at least 10 other states, according to the Tax Foundation.
But we've already saddled our highest earners with an income tax hike in 2011, raising the top rate from 6.5 percent to 6.99 percent. We can't continue to erode the few competitive advantages we have left in our tax code.
Connecticut has always been a bastion for wealthy residents (our per-capita income is still among the highest in the nation at $71,033), particularly before it adopted an income tax in 1991, but money walks.
If we continue to target our highest earners — who provide a large portion of state tax dollars — they will flee to other states. That's not just theory, it's economic reality: Connecticut's population has shrunk in each of the last three years.
We are in an intense competition with other states and countries for workforce talent, jobs and wealth. Lawmakers must govern within those constructs.
In fact, the most recent cause of our burgeoning state deficit, which grew seemingly overnight from $3.6 billion over two years to nearly $5 billion, is eroding income tax revenues from the state's 100 largest taxpayers, who collectively paid 45 percent less this year than a year earlier.
Much of that had to do with lower investment-related earnings including capital gains, but it still shows the vulnerabilities of relying on a small group of taxpayers to shoulder a large portion of the budget.
Even still, House Speaker Joe Aresimowicz (D-Berlin) said last week he can no longer rule out higher income taxes because of the state's worsening budget deficits. And the Finance, Revenue and Bonding Committee has already held a public hearing to increase the top marginal income tax rate to 7.49 percent. (Another wrong-minded proposal our crack legislators are considering would tax hedge funds' investment management services income at 19 percent, which would encourage a further thinning out of that important industry.)
Tax hikes, however, have proven ineffective in helping right Connecticut's sinking fiscal ship. After experiencing two of the largest tax hikes in state history in 2011 and 2015, our budget remains far out of balance, and our economy remains one of the weakest in the nation.
We understand the options for lawmakers are few. And if we do, by some miracle, avoid higher taxes at the state level, many local taxpayers will likely take it on the chin as the state reduces aid to cities and towns, forcing some municipalities to raise property taxes to make ends meet.
It's time for a vast restructuring of the state government apparatus, which is no longer affordable to Connecticut taxpayers. Lawmakers must rethink every service provided to residents and significantly reduce spending and/or the state workforce, while still preserving investments in transportation and other areas that will make the state more competitive economically.
Unfortunately, not even a slash-and-burn approach to state spending may be enough to make ends meet.
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