We’ve heard for years — mostly from Republicans during the Malloy era — that Connecticut is losing its wealthiest residents, largely because of the state’s high taxes and business-unfriendly policies. Others, mostly Democrats and left-leaning independents, say the rich-people-leaving trope is unfounded and simply used to scare taxpayers away from funding important programs.
Reality is more complicated. As a report published in the Mirror late last year made clear, “the empirical evidence shows the rich tend to move less frequently than low- and middle-income residents. The need for employment is still one of the main reasons people move while home and business ownership — most common among high-income households — promote stability.”
And consider this: If high taxes drive rich people out of the state, you would think tax cuts would bring them in. But that didn’t happen three decades ago when Connecticut’s wealthiest residents, despite the imposition of the new income tax, benefitted from one of the largest tax cuts in state history. Furthermore, the state still lost income to migration every year over the following decade.
There are cases in which higher taxes do appear to have driven the wealthy away, as happened in Maryland about a dozen years ago, costing the state $1.7 billion in revenues, though that assertion has been challenged by others.
In California, which saw a huge income tax increase on wealthy residents to a highest-in-the-nation 13.3% rate, the results have been mixed. Conservative groups say the rich are leaving in droves. Others insist that more rich people are moving in than leaving. And there is strong evidence that wealthy people moving into San Francisco and Silicon Valley and driving up housing costs for everyone is a far more serious problem than wealth outmigration.
But now we have evidence in the form of an analysis by Bloomberg News indicating substantial wealth out-migration from Connecticut. In terms of confirming or debunking the theory of the fleeing millionaires, the loss of wealth is much more relevant as a yardstick than the number of departing individuals or even corporations. The biggest beneficiary of wealth outmigration — not only from Connecticut but also from other states that lost wealth — appears to be Florida.
“Connecticut lost the equivalent of 1.6% of its annual adjusted gross income, as the people who moved out of the Constitution State had an average income of $122,000, which was 26% higher than those migrating in,” the Bloomberg report said.
Even progressives who are skeptical of the “millionaire with a suitcase” theory would have to agree that at some point the wealthy will flee the state. If, for example, the state income tax rate on high earners were to rise to a point higher than the federal rate, surely there would be an exodus. Ditto if the estate tax were to shoot up to, say, 50%.
I fear we have reached a tipping point in Connecticut in which the myth of the millionaire with a suitcase has become a reality. On one level, things aren’t so bad yet. Our tax rates are currently competitive with neighboring states and, though there are big challenges ahead, we are actually running an estimated budget surplus of more than half a billion dollars this year. That’s on top of a rainy day fund of $2.65 billion.
On the other hand, with a projected $3.5 billion deficit over the next two years, we still have enormous structural problems. And even if we can exorcise that demon, our pension liabilities are simply staggering. We have the highest unfunded liability per capita in the nation, with almost $33,000 per person. This is to say nothing of the poorly stocked fund that provides for other post-employment benefits (OPEB), such as healthcare for retired state employees.
I went to a fancy prep school on scholarship, taught for a dozen years in private schools, and spent about nine years in fundraising, so I’ve spent a lot time around people of means. If there’s one thing I know about the rich, it’s that they’re always looking down the road to see what’s next, in part because they have lots of money in the market.
And at this point, Connecticut’s future may not be as bad as the gloom-and-doom crowd is predicting, but nor does it look especially bright. We can count on additional tax increases, a further erosion of the tax base, no relief from what UConn economist Fred Carstensen has branded “the worst permitting regime in the country,” and a doubling down on our dependency on the volatile incomes of Fairfield County residents for revenue. Or in an effort to balance the books, we can cut spending so deeply that it would hurt the most vulnerable among us and cause a recession.
And we have no one but cowardly politicians in both parties to blame. Where’s Frank the Baker when you need him?
Contributing op-ed columnist Terry Cowgill lives in Lakeville, blogs at CTDevilsAdvocate.com and is managing editor of The Berkshire Edge in Great Barrington, Mass. Follow him on Twitter @terrycowgill or email him at email@example.com.
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