Connecticut's Lesson

Connecticut is my home state. I left almost 18 years ago, and it appears I was at the beginning of a wave of departures that continues to this day and is accelerating each year. Prior to my departure, I recall that Connecticut, a small northeastern state—blue to the core, had more state employees per capita than any other state in the country. Now, as many of those state employees—almost all unionized— move into retirement, an underfunded, poorly performing pension system is putting enormous stress on state taxpayers (who must foot the bill for pension payouts). A democratic legislature and governor, seeing the specter of default hovering in the air, have consistently raised taxes in a futile effort to shore up a weak balance sheet. At the same time, the same blue state politicians have increased spending, suggesting returning to toll roads and otherwise doing anything they can to increase revenue.

This was business as usual until a major news event occurred last week. General Electric Company, a corporate resident of Connecticut for almost 40 years, announced it is moving out of the state. Red Jahncke reports:

GE began considering a move when Mr. Malloy [Connecticut's Democrat Governor] and the Democrats jacked up corporate taxes summarily and retroactively last June. Thereafter, GE examined its future needs and settled upon a research-tech-urban environment as the most desirable for the future.

GE didn’t act just out of pique. It looked deeper and further than June’s tax hike. Connecticut is facing huge budget deficits of $355 million in 2017, $1.7 billion in 2018 and $1.9 billion in 2019, according to the state’s non-partisan Office of Fiscal Analysis. A cumulative deficit of almost $4 billion in an annual budget of about $20 billion is an abyss. Future tax increases are inevitable.

Nor are these projections dynamic. That is to say, they do not factor in the likely reaction of taxpayers, both businesses and individuals, to the coming succession of tax increases that the state will be forced to levy. Famously, Connecticut is the new Dodge City, the place that a 2014 Gallup Poll discovered half the citizenry wanted to get out of.

Well, they are leaving. The emigrants are higher income tax payers. Connecticut is the only state in the nation where the average income of taxpayers leaving the state is higher than those staying. According to the latest IRS data, between 2011 and 2013, about 95,000 taxpayers left the state; their average adjusted gross income was $112,000 versus an average of $101,000 for the remaining 1.4 million taxpayers. Only 78,000 taxpayers moved into the state, bringing an average income of only $86,000.

In other words, the state’s individual income tax base is eroding quickly. Indeed, after GE’s announcement, the state announced new shortfalls, with income tax receipts for the last six months coming in 2.6% below projections made just last June. So with GE’s departure, a slow exodus may turn into a stampede.

Incredibly, the failure of the tax and spend blue state model in CT, IL, CA, PR (a commonwealth), and many other cities and states doesn't provide an object level for left-wing democrats. They rally behind Bernie Sanders, a socialist who has proposed enormous spending and tax increases—increases so significant that they would result in the largest percentage of GDP in our nation's history. But in trance-like unison, Bernie's followers want to reprise Connecticut at a national level.

"Medicare for all," "free" college tuition, a $15 per hour minimum wage, a 52% marginal tax rate at the top and significant increases throughout the income scale, a class warfare narrative that demonizes business owners, a regulatory regime that will dampen innovation, start-ups, and expansion. But no worries, Bernie is all for 'social justice,' and that's all that matters.