Wealth Migration 1992-2014 — Connecticut Lost $12.36 Billion in Annual Gross Income. Source: How Money Walks
Twenty-five years ago, amid economic turmoil and a looming budget crisis that put legislators at each other’s throats, the then-governor of Connecticut made a fateful decision. Unsure of the best way to dig Connecticut out of its financial hole, Governor Lowell Weicker implemented an income tax.
The Nutmeg State would certainly come to rue that day.
Of course, Governor Weicker did not anticipate that the adoption of an income tax would send the state into a tailspin. In fact, as he announced his plans on May 15, 1991, he said, “I feel great.” In 2015, however, Connecticut taxpayers are feeling less than great. Despite Governor Weicker’s promises – that the income-tax revenue would be spent responsibly, that the additional dollars would correct Connecticut’s financial course – the new tax only led to further disarray and decline.
Just last week, the state’s General Assembly passed another budget that cuts services while continuing to spend more money. (The budget is so ill-conceived that it prompted credit downgrades from Fitch and Standard & Poor’s.) Anyone with a passing knowledge of Connecticut’s fiscal woes knows this is just the latest in a long line of bad decisions made by the state’s leadership. Connecticut’s irresponsible spending makes it an unappealing place for many families and businesses, and high taxes prompt alarming levels of outward migration. According to an analysis by The Yankee Institute for Public Policy, Connecticut’s outmigration causes the state to lose $60 of income every single second.
Numbers from How Money Walks corroborate The Yankee Institute’s findings, while showing the grim longer-term picture: Between 1992 and 2014 (the most recent year for which Internal Revenue Service taxpayer data is available), Connecticut lost $12.36 billion in net adjusted gross income (AGI). Perhaps not surprisingly, the bulk of this outwardly migrating AGI went to states that do not punish work by levying an income tax. The state of Florida won the lion’s share of Connecticut’s fleeing AGI, with $7.96 billion leaving the Nutmeg State for the Sunshine State.
Connecticut lost most in AGI to Florida, North Carolina, Massachusetts, Texas and California. Source: How Money Walks
Of additional concern is the impact Connecticut’s heavy burden has on the state’s wealthy residents. The state’s largest taxpayers are taking a look at the financial environment and moving their assets elsewhere. Not only are wealthy residents frustrated by the big hit the income-tax takes, they also must contend with Connecticut’s estate tax and gift tax. Instead of remaining in Connecticut and putting much of their wealth into government coffers, many wealthy families are electing to move to one of the 36 states that does not have an estate tax – or to one of the 49 states that does not have a gift tax (that’s right, only Connecticut levies this additional tariff). This exodus of wealth should alarm state leaders. When families with means leave Connecticut, they take with them income taxes, sales taxes, future jobs created by their companies, and philanthropic support for Connecticut’s charitable organizations.
The loss of wealthy families is of particular concern in Connecticut, because the state relies heavily on residents with adjusted gross incomes above $1 million. Internal Revenue Service data shows that, in 2013, people in this income bracket paid 40% of the federal taxes from Connecticut. That’s higher than any neighboring state, and it’s 67% higher than the national average.
Additionally, Connecticut is failing to grow its number of wealth residents in a sustainable way. Between 2010 and 2013, the number of Connecticut federal tax returns with adjusted gross incomes of $1 million or more grew by just 9.5% – compared with the much more robust growth percentage of 30% in business-friendly Florida. As Connecticut resident and Webster Bank CEO James C. Smith wrote in a recent opinion piece for the Hartford Courant, “When we lose these neighbors to lower-tax states, we lose not only their tax dollars but also their civic involvement, ingenuity, generosity and entrepreneurial spirit — qualities that Connecticut dearly needs to retain.” It is my hope that Connecticut, as well as other high-tax states, takes these words to heart. Otherwise, we may be looking at another 25 years of turmoil and decline.