After taxing the rich drives them out of the state, it is even considering using the debt strategies of Puerto Rico.
The only way the economy is helped by a state trying to collect significant revenue by taxing the rich is when those rich move to other states with lower taxes and boost their economic activity. Connecticut has now driven out many businesses and many wealthy residents. As a result, it is now facing the start of a fiscal crisis.
The Wall Street Journal column, “Connecticut’s Tax Comeuppance,” tells us that Connecticut is struggling to keep up revenue, and it even may resort to the same kind of borrowing that Puerto Rico indulged in!
Corporate revenues also took a hit after General Electric relocated to Boston. Mr. Malloy then offered tax breaks to hedge funds and companies to stay in Connecticut, which has further eroded revenue.
The Governor—a slow learner—seems finally to have accepted that raising taxes on the wealthy is a dead fiscal end. Democrats are now proposing higher taxes on tobacco, expanding casinos and eliminating some tax breaks, though they don’t want to touch an exemption for teacher pensions. The state teachers union warns that axing the exemption would impel retired teachers to relocate. A quarter of pension checks are currently sent out of state.
Mr. Malloy is also seeking $1.6 billion in concessions from unions, which would be easier to achieve if collective bargaining weren’t mandated by law. He’s suggested increasing municipal pension contributions and cutting state-revenue sharing, both of which could drive up property taxes and imperil insolvent cities like Hartford. Mr. Malloy’s budget includes a $50 million bailout for Hartford to prevent bankruptcy, which might occur in any case if Aetna—its fourth largest taxpayer—leaves.
The state treasurer has advocated “credit bonds” securitized by income-tax revenues to reduce the state’s borrowing costs. Investors beware: Puerto Rico tried something similar with its sales tax, and bondholders might not get back a penny.
Puerto Rico is an insane example to follow. But I wouldn’t be surprised if the Connecticut government does it anyway.
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