Connecticut shows the high cost of high taxes

In New England, the poster child for bad tax-and-spend governance is no longer Massachusetts. It’s Connecticut. And we can learn from the Nutmeg State’s nutty management.

Connecticut used to have relatively low taxes and a strong economy. Not anymore. Our friends at The Yankee Institute in Connecticut have chronicled the state’s decline in a recent report titled “Left Behind: Connecticut’s Lost Decade.”

Among its sad revelations:

  • Between 2012 and 2019, the Connecticut economy shrank during 13 of 32 quarters. The US economy shrank in only one (2014 Q1). Compared to other states, Connecticut posted the fourth-worst GDP growth between 2010 and 2019, and the worst among states where GDP didn’t decline.
  • Between 2011 and 2019, the adjusted gross income (AGI) for all U.S. taxpayers increased by 43 percent, but Connecticut’s rose just 23 percent—the third-lowest growth rate.
  • Connecticut in 2019 had 12,190 individuals and households (tax filers) with adjusted gross incomes of $1 million or more, a 28 percent increase from 2011 when it had 9,493. This was the third-lowest rate of increase, with only Oklahoma and West Virginia adding income millionaires at a slower pace. Nationally, the U.S. added about 250,000 income millionaires, an 82 percent increase. 
  • After more than keeping pace with the country in 2010, Connecticut each year created jobs at a slower rate than the nation. From January 2011 to December 2016, Connecticut increased private-sector employment by just 5.6 percent, less than half of the 13.4 percent gain that had occurred nationally.
  • Connecticut lost more residents to other states than it attracted every year from 2003 to 2020.

Warning of the consequences of raising taxes on high-income earners, the Pioneer Institute in Boston recently pointed out that Connecticut once had lower taxes than Massachusetts, and a stronger economy. 

But as Massachusetts shed the “Taxachusetts” label by cutting tax rates, Connecticut went on a taxing binge that brought its total state and local tax burden to the second-highest in the nation.

  • Between 2008-2020, Connecticut ranked 49th in private-sector wage and job growth. 
  • From 2012-2018, Connecticut lost more high-income taxpayers per capita than any other state.
  • Connecticut raised its top income tax rate again in 2015, and in 2016 the amount of tax revenue it raised from the top 100 taxpayers fell by 45%. 

Politicians and activists often take a good economy for granted. They assume that growth and innovation are constants. This is a mistake. Connecticut shows how you really can strangle an economy with bad policies.