What’s the matter with Connecticut?

by on July 6, 2017 at 2:14 pm in Current Affairs, Economics | Permalink

Despite being the richest state in the country, by per-capita income, Connecticut’s budget is a mess. Its pensions are woefully under-funded. Its deficit is projected to surpass $2 billion, or 12 percent of its total annual tax revenue. Hartford is approaching bankruptcy. Conservatives look at Connecticut and see a liberal dystopia, where high taxes have ruined the economy. Liberals, on the other hand, see a capitalist horror show, where the rich dwell in gilded mansions, ensconced in sylvan culs-de-sac, while nearby towns face rising poverty and bankruptcy. Why is America’s richest state floundering?

The first answer is: Corporations are leaving. Aetna, the insurance giant, is leaving Hartford, where it was founded 150 years ago. In early 2016, General Electric announced that it would move its global headquarters from Fairfield, Connecticut, to Boston.*

The second answer is: People are leaving. It’s rare for any state to actually shrink, but Connecticut’s population has been falling for three straight years. Meanwhile, only Michigan, Ohio, and Mississippi had slower job growth than Connecticut did over the last two decades, according to Jed Kolko, the chief economist at Indeed, a job site.

…The richest 0.02 percent of Connecticut households make more money than the bottom 48 percent, according to state reports. This 0.02 percent clusters along the Gold Coast and tends to work in finance.

In the last decade, Connecticut’s millionaires have accounted for as much as 30 percent of the state’s income-tax revenue. This is a problem, because the investment income of financiers is volatile.

That is from Derek Thompson at The Atlantic, interesting throughout.

1 DirtyJobsGuy July 6, 2017 at 2:19 pm

Aetna and GE took the politically correct way to explain their HQ departure as needing to be in cities where young millennials liked to be. Hogwash, corporate HQ’s don’t have lots of youngsters. The real thing is that the ever hungry progressive public sector union bosses in the legislature were emulating California in taxing global operations as local income. No place for a large outfit like GE to be headquartered. The same went for insurance and investments so an outfit like Aetna was at risk. So the finance based part of CT economy that was relied on for years (and prospered in a formerly low tax, low regulation environoment) was torpedoed.

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2 Borjigid July 6, 2017 at 2:25 pm

Aetna went to New York.

GE went to Boston.

Neither is in a low-tax, non-union jurisdiction.

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3 JWatts July 6, 2017 at 2:32 pm

As Borjigid points out, It doesn’t seem like those corporations are fleeing a high tax area specifically. On the other hand, perhaps the Corporate decision makers decided, that if they are going to pay high taxes, they might as well enjoy the networking effects of being in a large metropolitan area. I suspect it’s the combination of high taxes and a low networking area that is working against Connecticut.

“Connecticut officials had offered to match any incentive package to keep the corporate headquarters. However, Aetna opted for a major city with a growing digital economy that already counts major presences by Amazon, Apple, Google, and other big employers.

“New York is a knowledge economy hub, and a driver of the innovations that will play a significant part in our ongoing transformation,” Aetna CEO and Chairman Mark Bertolini said in a statement confirming the move. “Many of the roles in our new office will be filled by innovators from the area’s deep talent pool.””

https://www.usatoday.com/story/money/2017/06/29/aetna-moving-headquarters-nyc/439298001/

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4 Alain July 6, 2017 at 3:32 pm

If you were a CEO of a large, successful, company would you give any credence to any sweetheart tax deals by liberals?

I would not.

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5 Ken Schulz July 6, 2017 at 5:37 pm

In both the GE and Aetna cases, it is only a couple hundred headquarters personnel who are being moved; at least for now, thousands of working-stiff employees will remain in Connecticut. I think you are correct that it has more to do with opportunities for networking, maybe as much for personal as corporate advantage …

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6 Steve Sailer July 6, 2017 at 4:34 pm

CT’s problem today is that both Boston and New York City hired Bill Brannon as police chief.

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7 Art Deco July 6, 2017 at 10:33 pm

Bratton.

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8 GoneWithTheWind July 6, 2017 at 2:44 pm

Tax what you want to discourage and subsidize what you want to flourish. Of course the companies and wealthy people are leaving, they are being taxed excessively. Of course the welfare and public employees are bankrupting the state, they are being rewarded handsomely to do exactly that. The lesson is there for all to see but most are blind and can only hear left wing dog whistles..

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9 Thomas Taylor July 6, 2017 at 5:44 pm

You never allow facts get in your way, do you?

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10 Casablanca July 6, 2017 at 7:18 pm

They know nothing of Gulabi:
Swahili[edit]
Etymology[edit]
From Persian گلابی.
Noun[edit]
gulabi (ma class, plural magulabi)
lychee
rose apple

mshokishoki (a lychee tree). Not known by one Brazilian but all the finnish. They have signs.

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11 Boonton July 7, 2017 at 12:08 pm

Hmmm from the article:

Top 0.02% make more money than the bottom 48%.

All the millionaires collectively accounted for 30% of income tax revenue.

If a tax was neither progressive or regressive, then you would pay in exact proportion to the income distribution. In other words if some group made up 10% of total income earned, they would pay 10% of total income tax revenue….

But if 0.02% makes 48% of the income, they clearly don’t pay 48% of the income tax. So that implies Ct is actually rather supply side minded state when it comes to taxes.

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12 Mike W July 6, 2017 at 5:06 pm

Or maybe GE and Aetna leaving is entirely unrelated to CT’s budget problem and the Atlantic journalist is just makin stuff up.

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13 Borjigid July 6, 2017 at 6:04 pm

The departure of GE and Aetna causes some of CT’s budget problem- I would be surprised if they were not net tax payers, to say nothing of less direct benefits.

Was there a suggestion in the article that the CT budget problems are causing GE and Aetna to leave?

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14 Ray Lopez July 6, 2017 at 6:11 pm

Yes, the Atlantic is under-sampling and trying to make a story out of that; note that from 2007 to 2013, the heart of the Great Recession, CT population actually grew! It’s only since 2013 to now that the population has shrunk a bit, possibly due to businesses moving out, or just cyclical factors. A non-story. Note CT population today is about the same as in 2010, not bad.

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15 Steve-O July 7, 2017 at 12:30 pm

Taxing worldwide income doesn’t necessarily increase a company’s tax liability. The company I work for elects to have its worldwide income taxed by various states because it lowers the liability. If foreign and US operation have the same profit as a percentage of sales, typically the state tax liability will be the same on a US or worldwide basis.

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16 Dan in Philly July 6, 2017 at 2:28 pm

Average is over in Connecticut, too it seems.

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17 Jeff R July 6, 2017 at 3:18 pm

Does that mean everybody either goes to Yale or Southwest Connecticut State, now?

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18 msgkings July 6, 2017 at 3:47 pm

More like Yale or no college at all

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19 A shagbark tree named supertramp July 6, 2017 at 10:16 pm

I got into Yale because I speak four languages. Body language fluently, sign language conversationally , English and street sign language.

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20 y81 July 6, 2017 at 2:32 pm

Pretty typical Atlantic article: some interesting statistics, some thumbsuckerish meditation, concluded with a peroration urging us to double down on the standard liberal nostrums. It’s hard to remember, but in 1976, I thought of that magazine as intellectually stimulating.

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21 ladderff July 6, 2017 at 2:47 pm

Thread winner; mods please close thread.

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22 Dick the Butcher July 6, 2017 at 3:23 pm

What is this “Atlantic” of which you write?

Brevity is the soul of wit. The matter with CT is too many decades of one party rule.

I remember 1976. At the time, I wasn’t into “intellectual stimulation.” Still not.

Somehow, NY appears preferable on a tax-environment basis; and is not as nearly bankrupt as certain other states and Puerto Rico. I was a once a high-income (low six figures) NY-er. I thought the personal income taxes were oppressive and needlessly complicated. And, the real estate taxes were huge.

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23 Alain July 6, 2017 at 3:33 pm

+1

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24 Ryan July 6, 2017 at 3:40 pm

Not sure the conclusion is a doubling down on liberal nostrums. It seems to say the Connecticut can thrive when it’s neighboring big cities are horrible (offering an escape) or if it was nicer and cheaper and low-regulation (no solution to this is suggested).

“High taxes, or even the reputation of high taxes, might be accelerating this population shift.”
“Connecticut has neither ‘the sunny days of Arizona [nor] the regulatory nonchalance of Alabama.'”

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25 y81 July 6, 2017 at 4:33 pm

The liberal nostrum for economic development is to do a Richard Florida, build cities with lots of hip music and clubs to attract young people. Also lots of gay rights laws (and, more recently, unisex bathrooms) to show how tolerant you are. Conveniently for liberal government employees, this strategy involves giving them lots of discretionary money to spend on cool stuff and virtue signaling. Inconveniently, it doesn’t particularly work.

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26 Alain July 6, 2017 at 3:44 pm

Also typical Atlantic article: liberal state is failing? Why-o-why? What could be the reason?

Perhaps this : https://www.aei.org/wp-content/uploads/2014/04/-biggs-overpaid-or-underpaid-a-statebystate-ranking-of-public-employee-compensation_112536583046.pdf

Tells the story? Connecticut is a standout in a number of the metrics.

But that can’t be the reason. I think it is the private sector not pulling its weigh! Those evil capitalist bastards. Tax them! Maybe a wealth tax!

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27 Thiago Ribeiro July 6, 2017 at 5:48 pm

The link asks me if I am a robot. If I lie, will I be injuring a human being or, through inaction, allowing a human being to come to harm?

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28 Ray Lopez July 6, 2017 at 6:13 pm

@TR – it means you’re using a Virtual Private Network to access the site. I do that too when downloading porn, and get the same anti-robot’ messages, but not when reading Marginal Revolution, which is not yet that controversial.

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29 Thiago Ribeiro July 6, 2017 at 6:17 pm

Thanks for the information. I did not know I was using a VPN, I am visiting my sister. Hypotetically, if I were a robot and lied about my status, would I be injuring a human being or, through inaction, allowing a human being to come to harm? I would rather not.

30 HL July 6, 2017 at 2:32 pm

Can’t raise taxes, rich people will flee and income will fall. Can’t lower taxes, businesses still won’t come and income will fall. Can’t reduce benefits. Can’t go bankrupt.

What can a state do?

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31 Effem July 6, 2017 at 2:35 pm

1) Raise property taxes…property can’t move. No politician wants to do this…but i see it becoming a necessary evil.
2) Go bust and receive the (inevitable?) Federal bailout?

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32 Mike Linksvayer July 6, 2017 at 2:41 pm

CT passed a Land Value Taxation pilot program, see http://www.ct.gov/opm/cwp/view.asp?a=2985&q=535412 but I don’t know whether it has been used yet. Maybe crisis will force this reform, rather than stupider ones.

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33 JWatts July 6, 2017 at 2:41 pm

“1) Raise property taxes…property can’t move.”

If property taxes are much above a nominal value, they start negatively affecting the value of the land. I suspect the Laffer curve for property taxes is far, far lower than the Laffer curve for income.

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34 Effem July 6, 2017 at 3:02 pm

The property market is pretty efficient. I would think the value would simply fall by the NPV of the tax increase. Basically a direct transfer from property owners to the State. But would be interesting to see…

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35 JWatts July 6, 2017 at 3:51 pm

“The property market is pretty efficient. I would think the value would simply fall by the NPV of the tax increase.”

Well sure …. voters just love politicians who degrade the largest store of wealth for the middle class.

Also, what’s the NPV value of the tax increase? (Hint: You have to compare the tax increase versus the average property value increase per year.)

36 Jan July 6, 2017 at 3:34 pm

Tell that to New Hampshire.

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37 JWatts July 6, 2017 at 4:21 pm

“Tell that to New Hampshire.”

New Hampshire’s Property tax rate isn’t much higher than Connecticut’s rate: 2.15 vs 1.97. They rank 3rd and 4th as the highest state level in the country.

https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/

38 Slocum July 6, 2017 at 4:40 pm

It depends on the rest of the tax burden — what else to you sign up for when you buy a house? Detroit is a good (bad) example of high taxes depressing property values. Why do houses in the city sell for far below replacement value (when that isn’t the case in the nearby ‘burbs)? A big reason is that the annual property tax rate is 3.5% (and many Detroit residents face even higher percentages because assessed valuations have not kept up with declines in the market values). And that’s on top of a two and a half percent city income tax. And the nation’s highest auto and homeowners insurance rates. Outsiders think $15,000 houses in Detroit mean it must be cheap to live there, but the truth is that houses are worth so little precisely because taxes and other costs are so high.

39 Jan July 6, 2017 at 6:31 pm

NH has the third highest property taxes in the country (as measured by taxes on the a US-median value home of $179,000).

40 Slocum July 6, 2017 at 9:26 pm

“NH has the third highest property taxes in the country (as measured by taxes on the a US-median value home of $179,000).”

Right — Texas is up there too. But neither has a state income tax. It’s a package deal. Compare NH to the whole package in Illinois — the legislature just overrode the governor’s veto to raise the income tax rate to 4.95%. The property tax rate is already second in the nation at 2.3% (higher than NH). If you live in Cook County (which 5M of the state’s population do) then your sales tax rate is 8% and it’s a full 10.25% in Chicago (New Hampshire’s is 0%). And that’s hardly the last of it — don’t forget ‘amusement taxes’, ‘cloud computing taxes’, ‘vaping taxes’, etc:

http://www.chicagotribune.com/news/local/politics/ct-illinois-new-taxes-fees-20151231-story.html

41 spencer July 7, 2017 at 12:46 pm

New Hampshire does not have a sales tax or an income tax.

The residents are quite satisfied to trade that off for a higher property tax

42 Daniel Weber July 6, 2017 at 7:15 pm

You act as if the value of the real estate is related to how much revenue they bring in.

It does only to the degree that your neighbor with 20% more property will pay 20% more tax. But the jurisdiction decides how much revenue it can squeeze and then sets that rate. It has nothing to do with a “fair” rate of taxation to property.

When property values go up, government will pretend that it’s increasing revenues are just natural. When property values go down, government will point out that it needs money to run and increase the millage.

In the end, though, I think property taxes are really the only thing the state can absolutely rely on to pay for its promises. You can’t enslave the people or their incomes, yet, but you can confiscate the property of people who were foolish enough to buy real estate in your state.

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43 txslr July 6, 2017 at 3:04 pm

Property also cannot pay taxes.

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44 msgkings July 6, 2017 at 2:58 pm

Pension reform

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45 Jeff R July 6, 2017 at 3:22 pm

Tax Yale’s endowment.

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46 Lonely Libertarian July 6, 2017 at 8:14 pm

Confiscate it – benefits to few people at too high a cost.

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47 Thomas July 7, 2017 at 1:31 am

Tax Yale’s endowment at 25% per year with all revenue sent to inner city kids. Support it or be racist.

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48 JWatts July 6, 2017 at 2:36 pm

“Liberals, on the other hand, see a capitalist horror show, where the rich dwell in gilded mansions, ensconced in sylvan culs-de-sac, while nearby towns face rising poverty and bankruptcy. ”

Really? Because I can’t ever recall seeing this with regards to Connecticut on the national stage. Frankly, Connecticut is better than LA, San Francisco, Washington DC, Chicago, and a host of major cities with regards to inequality. I suspect the author is just trying to Frame the debate in a manner that’s acceptable to his world view.

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49 Jan July 6, 2017 at 3:38 pm

Probably true, but it’s easier for stark inequality to arise in cities–especially gentrifying ones–than whole states.

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50 JWatts July 6, 2017 at 3:55 pm

I would agree with that. But there are a large number of states that are far worse than Connecticut. California, Florida and New York are clearly worse off. Indeed, the poverty rate in Connecticut is substantially below the national average.

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51 Lonely Libertarian July 6, 2017 at 8:17 pm

Not sure why you think Florida- the bubble burst and it was ugly…
But we seem to have reached some sort of equilibrium. Property values have resounded and we have help,wanted signs in every business

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52 adam July 7, 2017 at 2:37 pm
53 Floccina July 6, 2017 at 2:40 pm

When I moved for IR to Florida I marveled that public goods here seemed just as good or better despite Florida not having an income tax. RI seemed to huge very inefficient state and local Governments, lots of folks I knew were working for the state and saying that they did very little work.

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54 Floccina July 6, 2017 at 2:43 pm

Look at this Total state government expenditures. It has per capita numbers.

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55 mpowell July 6, 2017 at 3:12 pm

I think this is the whole story. Connecticut can prosper as long as Manhattan is a crime-ridden trainwreck OR it maintains a low cost of government. Right now it has neither and thus nothing to offer over MA or NYC or the south. The cost of living away from the NYC border in Connecticut should be cheap. That has to be the main goal or living in Connecticut will be a bad deal for anyone who isn’t a NYC banker.

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56 Art Deco July 6, 2017 at 4:08 pm

There are 3.5 million people there and two 2d tier metropolitan settlements with 1.6 million people in them in toto (with a half dozen smaller cities). It’s not an appendix of New York, not all that convenient for commuters, and has ample physical plant and human capital.

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57 Roy LC July 6, 2017 at 5:02 pm

You could say the same about Fresno, Stockton, or Bakersfield. The problem is that those “second tier” citues are really third or fourth tier when you look at the region as a whole.

Or another way to put it: Tacoma, Norman, and Aurora, CO are each the third largest cities in their respective states.

58 Art Deco July 6, 2017 at 10:36 pm

You could say the same about Fresno, Stockton, or Bakersfield. The problem is that those “second tier” citues are really third or fourth tier when you look at the region as a whole.You could say the same about Fresno, Stockton, or Bakersfield. The problem is that those “second tier” citues are really third or fourth tier when you look at the region as a whole.

What are you talking about? The three cities you’ve named are at the core of dense settlements which average about 300,000. That’s a little over have the size of greater Hartford and less than a third the size of the coastal settlements in Connecticut. And, of course, they’re notably less affluent as well.

59 CM July 6, 2017 at 5:34 pm

I think this is a little misleading because it only reflects spending by state governments. Its more important to look at the aggregate of state and local government spending. Her is a list of states that break out per capita state and local spending:

http://www.taxpolicycenter.org/statistics/state-and-local-general-expenditures-capita

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60 CM July 6, 2017 at 6:01 pm

Here is a better way to compare tax burdens – state and local tax revenue as a percentage of personal income. By this metric, CT collects less state and local tax revenue than the national average (as does IL).

http://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-percentage-personal-income

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61 CM July 6, 2017 at 7:02 pm

I’m now less confident in my above comment. The Tax policy Center also publishes a chart f “State and Local Tax Revenue as a Percentage of Personal Income, Indexed to tUS Average” that seems to produce a different result. Not sure why these two charts wouldn’t track.

http://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-percentage-personal-income-indexed-us-average

62 The Engineer July 6, 2017 at 2:45 pm

Connecticut’s malaise started when they enacted an income tax. Before that, they were stealing jobs from New York like crazy.

Illinois too seems to be in freefall. Property taxes in Illinois are growing at a frightening rate. The house I sold in ’07 is worth less than I sold it for, but property taxes doubled.

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63 Brian Donohue July 6, 2017 at 3:01 pm

I was glad to see Illinois as a state not in the crosshairs for once, and then you go and spoil it.

I will note that, based on Floccina’s link above, Illinois is near the bottom in government spending per capita. So, while government finances are a mess, it would seem there is room to raise taxes.

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64 Yancey Ward July 6, 2017 at 5:27 pm

Brian,
I looked at that link and couldn’t decide if it included local spending or not. I suspect the answer is not.

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65 CM July 6, 2017 at 5:36 pm

The answer is no. Here is a list (not ranked) of state and local spending per capita.

http://www.taxpolicycenter.org/statistics/state-and-local-general-expenditures-capita

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66 Yancey Ward July 6, 2017 at 6:16 pm

Thank you, CM.

67 Brian Donohue July 6, 2017 at 7:00 pm

Thank you!

68 Alan M July 6, 2017 at 3:41 pm

Aetna just threatened to leave Illinois as well. Seems the two states share quite a bit in common. If I’m not mistaken, Illinois actually has a worse population outflow problem than CT (which will probably only get worse with the recent income tax hike).

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69 JWatts July 6, 2017 at 4:02 pm

“The house I sold in ’07 is worth less than I sold it for, but property taxes doubled.”

I think you mean that property taxes doubled and now the house you sold in 2007 has declined in value.

Taxes are a significant portion of the cost of owning a house. The average rise in the value of a house in the US from 1968 to 2004 was 6.4%. Raising property taxes on a house by 1% over the historical tax rate is going to significantly effect the value of the house!

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70 The Engineer July 6, 2017 at 4:10 pm

Was what I wrote unclear?

I don’t believe the property taxes drove down the home price, the Great Recession did that. But property taxes SHOULD be based on assessed value, and if anything should have declined, all things being equal.

Over here in the Hoosier Holyland, our property taxes are capped at 1% of assessed value (plus school referendums, can’t limit school spending, can we?). If my home went down in value (which it did), my taxes go down.

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71 JWatts July 6, 2017 at 4:28 pm

“Was what I wrote unclear?”

I was just trying to emphasize the point that property taxes directly effect the value of housing. People look at the over all rate and think that 1 to 2% isn’t very much. But it’s a huge chunk of the appreciation gains and directly effect the NPV of the property.

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72 A Definite Beta Guy July 6, 2017 at 4:39 pm

Some Redditors said the Illinois tax increase isn’t any big deal, $50 a pay period if you get paid bi-weekly.

I want to ask them if they can send me $2600 next year. No big deal. Just $50 a pay period. Won’t even miss it!

Over the course of 18 years, it’s a huge number! Certainly a big impact in, say, how many children my family might have.

73 Thiago Ribeiro July 6, 2017 at 5:56 pm

Because you spend $50 per child per payday or because you save $50 every payday during 18 years before having a child?

74 Normal July 7, 2017 at 7:50 am

…property taxes SHOULD be based on assessed value, and if anything should have declined…

That’s not how property taxes work. If that were true, then the total tax revenue would not cover town expenses.

When valuations go down, the mill rate is increased to provide the total revenue needed to run the town.

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75 yZrs July 7, 2017 at 10:50 am

Up here in Canada our property taxes are based on property values, but only on a relative basis. City sets its budget to be covered by property taxes X, calculates total assessed property value Y as the sum of all individual properties (y1+y2+y3…) and sets the tax (mill) rate at X/Y. Your individual property tax is therefore yi/Y.

This way everyone pays a fair share, but city budgets and taxes are stable even as property values boom and bust. Of course, it hasn’t kept the city from increasing the budget/mill rate way faster than growth/inflation to fund stupid progressive pet projects. However, my property taxes have been slowly decreasing even as my property values and the overall budget have been increasing, because property value growth in the inner city and exurbs has outpaced those in my suburb.

76 A Definite Beta Guy July 6, 2017 at 4:26 pm

Illinois is Screwed with a capital S. We are already pretty heavily taxed, which is expected to go up today after Rauner’s veto gets overturned. And our legislators are already telling us we’re just going to get stuck with even more tax increases.

Don’t worry, though, we’ll all be going this way eventually!

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77 The Engineer July 6, 2017 at 5:18 pm

And you can’t even say that you are getting good services for your money. For example, half of Chicago Public School spending goes to pensions! You’re not even paying for “education”.

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78 Thiago Ribeiro July 6, 2017 at 5:56 pm

And you will pay for today’s education tomorrow. It is like having a credit card.

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79 Daniel Weber July 6, 2017 at 7:27 pm

I am assured that we will be able to borrow from the future indefinitely. And if not indefinitely, at least until the boomers are dead.

80 CM July 6, 2017 at 6:16 pm

Illinois is badly run and politically balkanized but it is not heavily taxed. State and local governments in Illinois collect less taxes as a percentage of personal income than 23 states (including Iowa, Michigan, Minnesota and Wisconsin) and the tax burden as a percentage of personal income is below the national average.

http://www.taxpolicycenter.org/statistics/state-and-local-tax-revenue-percentage-personal-income

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81 a definite beta guy July 7, 2017 at 8:15 am

Just wait. Illinois just passed a tax increase, the major cities are raising their property taxes, and more taxes afe coming down the pipeline.

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82 JWatts July 6, 2017 at 2:52 pm

The premise of this article is flawed:

First this:
“For conservatives, the culprit is just as simple: It’s big government run amok. … Conservatives argue that Connecticut’s income, property, and sales taxes have reached an altitude that cannot support economic life. … “[nor] the regulatory nonchalance of Alabama.””

And then this:
” Liberals, on the other hand, see a capitalist horror show, where the rich dwell in gilded mansions, ensconced in sylvan culs-de-sac, while nearby towns face rising poverty and bankruptcy. ”

The author sets these up as contrasting. But they don’t contrast. High taxes and high regulations drive out businesses and tend to hollow out the middle class. The very same thing is happening in California, which has gone from the California Dream to the state with the highest poverty rate (PPP) in the country. The rich can afford to pay the taxes, the poor don’t pay the taxes and the middle class starts disappearing as their children leave and others don’t tend to immigrate there.

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83 The Anti-Gnostic July 6, 2017 at 4:19 pm

Correct. It’s easier to be middle class in Red States than Blue States. See also Sailer’s “Dirt Gap.” Even Richard Florida agrees.

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84 Corey July 6, 2017 at 5:39 pm

New Hampshire has one of the highest (and in some years, the highest) per capita income of any state, but also the lowest gini coefficient. Must be the high taxes and lavish public spending, right?

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85 JWatts July 6, 2017 at 5:51 pm

“Must be the high taxes and lavish public spending, right?”

You’ve got the causation mixed up. The High per capita income makes the initial high taxes affordable and leads to lavish public spending. The high public spending lowers poverty and thus reduces the gini coefficient.

That all works fine as long as you maintain a High capita income and the lavish Public spending doesn’t result in lavish Pension spending. That being said, Connecticut isn’t in as bad a shape as Illinois.

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86 Careless July 8, 2017 at 1:01 am

it was a joke. They have low taxes and public spending

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87 rayward July 6, 2017 at 3:02 pm

Connecticut is a lot like my low country community: it has lots of wealthy (part time in my case) residents who make their money elsewhere. What’s the significance? Well, the wealthy (part time) residents in my community don’t really care about the rest of the community but only the wealthy enclave where they live. The contrast between the wealthy enclave and the rest of the community couldn’t be more stark. The expensive resort in the enclave used to employ many of the locals, sometimes three generations at one time. Now, the resort imports much of the labor from eastern Europe, the Philippines, and the islands, housing them in an owned by the resort. That leaves the locals with few opportunities, many leaving the community that has been home for many generations in order to find work. Do the wealthy residents of Connecticut import the labor needed to care for their homes, work in the restaurants and shops, teach in their schools?

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88 Casablanca July 6, 2017 at 7:31 pm

Oh, my guess is, they come New Brunswick to Brunswick to Jacksonville. the Trans-Canada Highway to New Brunswick, then maybe catch the 1 and take the scenic route along the coast of Maine. I-95 through New Hampshire to the Mass Pike then 17, then cut over from I-95 to the Toras Causeway ’round the Golden Isles

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89 Casablanca July 6, 2017 at 7:33 pm

I guess they go from New Brunswick to Brunswick then Jacksonville. Catch the 95 to 17 to 95 cut over on the Toras Causeway head towards the Methane Sea.

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90 Cooper July 6, 2017 at 3:22 pm

Connecticut has a low fertility rate (1.6 children per woman in 2015) and 4th lowest birth rate in the nation (21% below average).

The state isn’t generating enough new residents to compensate for the residents they are losing to domestic migration.

Retirees don’t pay nearly as much in taxes as working age adults so the greying of the population is bound to put a strain on state finances.

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91 msgkings July 6, 2017 at 3:55 pm

And this is the problem with Japan, Europe, and thus the US and eventually the whole world. Population will plateau and start to drop, graying will be a thing everywhere. This will be the biggest strain on global capitalism since it began.

Even Elon Musk is worried: http://www.cnbc.com/video/2017/07/06/elon-musk-the-worlds-population-is-accelerating-toward-collapse-and-nobody-cares.html

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92 Cooper July 6, 2017 at 6:22 pm

Between 2010 and 2040, the elderly population of Connecticut is forecast to grow by 57%. The working age population will grow by less 2%.

>“In 2010, there were 4.35 working-age people for each person age 65 and older in Connecticut,” according to the CLCA. “In 2030, there will be only 2.75.”

http://www.wiltonbulletin.com/21594/connecticuts-elderly-population-projected-to-grow-57-by-2040/

And these are old, optimistic forecasts. The real change in the workforce from 2010 to 2040 will likely be negative, not positive.

We could have a situation where real tax revenues are falling over time even during boom years.

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93 Normal July 7, 2017 at 7:53 am

True!

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94 Careless July 8, 2017 at 1:56 am

good news, msg! Africa is still in the Malthusian Trap!

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95 Anonymous July 6, 2017 at 3:23 pm

I was going to make the bold claim that this isn’t about policies at all, but about the problems of being too small. But I see that with 3.5M people Connecticut actually ranks 29th in population. Still, when California is roaring along with ten times that, there could be a problem of scale ..

No, it looks like CT falls below the line, under-performs on GDP per population.

http://www.economics-charts.com/gdp/GDP-Per-Capita-scatter-plots.html

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96 Cooper July 6, 2017 at 3:27 pm

Fastest growing places in the US have one of the following features:
* Shale Gas (North Dakota)
* Cheap, Hot Suburbs (Phoenix, Atlanta)
* Exciting Cities with lots of hip Millennials (Portland, Seattle, Austin)

Connecticut has none of those things and is falling behind.

The state is still punching above its weight in terms of GDP generated per capita. That could fall over time if current trends continue.

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97 Anonymous July 6, 2017 at 3:38 pm

You are correct, I misread that chart, in terms of which was the good side to be on.

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98 Art Deco July 6, 2017 at 4:14 pm

I’d be interested to see what would happen in Phoenix if Arizona paid full freight for water and electricity.

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99 msgkings July 6, 2017 at 4:23 pm

Who’s paying for Arizona’s water and electricity besides Arizona?

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100 Roy LC July 6, 2017 at 5:18 pm

They are.

Californians are under the delusion that Arizona’s water allocation, and the related hydroelectric power, belongs to them. I have sat in a planning meeting and heard multiple officials declare that when they really need it, AZ will cough up the water, and so will Oregon.

101 Anonymous July 6, 2017 at 5:59 pm

Dude, when your border is a river there is going to be an argument.

102 Art Deco July 6, 2017 at 10:54 pm

Californians are under the delusion that Arizona’s water allocation, and the related hydroelectric power, belongs to them. Californians are under the delusion that Arizona’s water allocation, and the related hydroelectric power, belongs to them.

Not sure what the deal is now. As recently as 30 years ago, western states were receiving federal hydroelectric power at 1937 prices.

Ideally, you’d each year multiple-price auctions of tranches of western watersheds, with the global allocation set each year by a federal authority according to ecological criteria. What would Arizona and California consumers be paying under those circumstances? I’d wager enough to replace their lawns with desert gardens.

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103 Art Deco July 6, 2017 at 10:55 pm

“youd have each year multiple-price auctions of tranches from western watersheds”.

104 asdf July 6, 2017 at 3:26 pm

Hartford is really fucking boring.

If it were on the coast then it would be right on the major transpiration lines (highway, rail, and boat) between NYC and Boston, thus maybe having some role, but instead its in the center inland and you have to go out of your way. Phili is much better situated by comparison in-between DC and NYC.

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105 Cooper July 6, 2017 at 6:59 pm

Philadelphia is a real city with history, culture, things to do.

Fun fact, Pennsylvania’s capital city is also a bankrupt mess in the middle of nowhere. Harrisburg invested heavily in a trash incinerator that became a financial debacle. The city had to file for bankruptcy in 2011.

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106 Art Deco July 6, 2017 at 10:58 pm

The core city is a bankrupt mess. About 82% of the population of the metropolitan settlement lives outside the core city. It’s not ‘int the middle of nowhere’. Pennsylvania isn’t Nevada.

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107 The Other Jim July 6, 2017 at 3:43 pm

It’s best that we don’t mention the CT “millionaire’s tax.”

Too many people here need their blinders to function.

Much better to keep pondering about what is wrong with CT. Ponder away, young minds. Ponder.

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108 JWatts July 6, 2017 at 4:14 pm

The millionaire’ tax is certainly a negative, but I doubt it’s the most significant factor. High regulations, high property taxes, high income taxes, falling population levels, cold weather, etc. The result is a State that is headed towards some long term fiscal re-alignment. However, the residents are still in denial. Connecticut is obviously in better shape than Illinois, but the cliff is still approaching.

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109 Ken Schulz July 6, 2017 at 5:27 pm

Maybe no one has mentioned it because the ‘millionaire’s tax’ has never passed the Legislature?

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110 Joey JoJo Jr Shabadoo July 6, 2017 at 3:56 pm

Grr… librulz r bad, amirite? Conservatives r gud. Y don’t librulz get taht they are bad?

Send me +1s plz.

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111 Thomas July 7, 2017 at 2:45 am

You’re drunk

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112 Art Deco July 6, 2017 at 4:03 pm

Here’s a suggestion: they had comparative advantage in certain sorts of enterprise which has, over time, dissipated. This is an adjustment, one whose irritations have been exacerbated by policy errors. There’s nothing to be done but correct some policies and wait it out.

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113 Ali Choudhury July 6, 2017 at 4:11 pm

+1

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114 JWatts July 6, 2017 at 4:39 pm

“There’s nothing to be done but correct some policies and wait it out.”

Yes, but much like Illinois, instead of braking before the fiscal cliff, they’ve decided to accelerate.

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115 Ken Schulz July 6, 2017 at 5:43 pm

I noted above that only the top executives of GE and Aetna are being moved; large-scale operations remain. Maybe policy initiatives should concentrate on being a good place to conduct business operations, a short commute from your glitzy headquarters in NYC or Boston.

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116 Roy LC July 6, 2017 at 6:14 pm

There seems to be a situation where certain companies like to have their HQ away from their actual operations. Boeing moving to Chicago is an excellent example, or ExxonMobil moving from New York to Irving, TX near Dallas where they have nothing while most of their operations and their management is in Houston.

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117 CM July 6, 2017 at 5:23 pm

I stopped reading when he claimed that Motorola and Caterpillar left CT for Chicago.

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118 Cove99 July 6, 2017 at 7:03 pm

Is anyone on this thread from CT ?? Daniel Malloy is clueless. Yes there r billionaires in Greenwich/Fairfield co,,,,,guess what… rich people can easily move or buy a house in Jupiter FLA….who knew?? CT on a percentage basis has an enormous public sector which Malloy has coddled since day 1….malkoy never planned on finishing this term….he was convinced Hillary had a job for him

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119 Ken Schulz July 6, 2017 at 9:41 pm

I am a 33-year Connecticut resident. You are wrong in most particulars, including your misspelling of Governor Dannel Malloy’s name. He has consistently opposed soak-the-rich tax plans and has negotiated concessions from state-employee unions. Connecticut has fewer state employees per 100,000 population than Wyoming, West Virginia and Mississippi (Google it).

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120 Cooper July 6, 2017 at 10:16 pm

Connecticut public sector employees are highly paid relative to public sector workers in other states. The three states you mentioned are either desperately poor (MS/WV) or tiny states that pay for bloated public sectors with resource rents (WY)

https://www.aei.org/wp-content/uploads/2014/04/-biggs-overpaid-or-underpaid-a-statebystate-ranking-of-public-employee-compensation_112536583046.pdf

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121 Art Deco July 6, 2017 at 10:50 pm

Neither West Virginia nor Mississippi are desperately poor. They are just less affluent than Connecticut. Income levels in West Virginia are about 21% below national means and Mississippi’s about 27% below.

State-employees-per-capita is a metric which needs requires some supplementary data. The division of labor between state, county, and municipal government does vary.

Public employee compensation amounts to 10.2% of gdp in Connecticut v. 12.3% nationally. Not sure that’s the problem here.

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122 Ken Schulz July 6, 2017 at 11:09 pm

I only mentioned those three states as examples, there are about a dozen or so that have higher ratios than Connecticut. Our state employees are of course paid more than other states, cost of living is high. The paper you cite actually compares public- to private-sector employee compensation within states, so cost of living is comparable. Connecticut’s high ratio on that measure is hard to justify, agreed – but I haven’t gone over the methodology in detail.

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123 MS65 July 6, 2017 at 11:38 pm

Salary and benefit costs are 35% of the state budget. And that doesn’t even get to the elephant in the room – the unfunded liabilities for state employees which are over $100 billion including count health benefits.

Unless the state figures a way out of this spiral, in which taxes keep increasing and the people who pay taxes are driven from the state this will be a disaster for the current and retired state employees. By ignoring the problem for two decades a problem that could have been solved with relatively small changes in compensation and benefits will now require major cuts. The state employee union leaders (including the current Speaker of the House) have done quite well for themselves while screwing their own members in the long-term.

124 MS65 July 6, 2017 at 7:46 pm

As someone who recently emigrated from Connecticut, I found the article in The Atlantic amazingly shallow. Yes, Connecticut faces some challenges related to deindustrialization and problems in its cities, but there is one critical moment in its history that is ignored – the institution of an income tax in 1991. Before then, CT had an arbitrage advantage over its neighboring states. I lived in MA at the time and if you’d told me 30 years ago that in the future it would be CT and not MA would be the basket case I would not have believed it. Due to citizen referendums and prudent management MA got its fiscal situation under control, but CT spent the flood of new tax money on new programs and state employees, with spending up more than 250% while population only grew 8% since 1990. The state has dug itself a financial hole it cannot get out of. State employee pensions are less well funded than they were before the income tax!

Almost everyone in the state who does not have family living there or a non-movable business, is thinking of leaving. They see, as we did, a continuing spiral downwards. The state needs more money to keep itself afloat and no one wants to pay the inevitably growing burden.

I know folks in both large companies that moved and one factor was the proposed unitary tax. While it was defeated a couple of years ago anyone who looks at the desperate state fiscal situation knows that it is not permanently off the table. The state could only get Sikorsky to stay by making an outrageous deal with Lockheed Martin.

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125 Thomas Sewell July 6, 2017 at 8:15 pm

From http://www.connecticutmag.com/the-connecticut-story/one-party-politics-in-connecticut-the-elephant-not-in-the/article_bf3e7a31-12d9-5bc4-842d-818b8074b32d.html :
“The state has had a trifecta of Democratic rule, with an absolute majority in the House and Senate, and a Democrat in the governor’s office since 2011. Even before then, while Republicans controlled the governor’s office since the 1980s (and a few years in between), Democrats have controlled both chambers of the assembly for decades.”

What I find amusing about the Atlantic article is that it blames “trends” for everything, nobody specific could possibly be responsible.

When you boil it down the competing theories sound like either the Democrats following their policies caused it, or else the Democrats just need to get in power to be able to address the problems properly. Sadly for the second theory, it’s been a one-party states for years, as noted above.

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126 Ken Schulz July 6, 2017 at 10:01 pm

Some substantial proportion of the increase in state outlays you cite simply displaced local spending by towns and school districts, to provide relief from high property taxes. The intent was to increase the overall progressivity of the tax burden, and especially to favor residents on fixed incomes. I can’t quickly find historical data, but it is unlikely that there was any sharp rise in state-employee headcount, as it remains very middle-of-the-pack today, compared to other states.
Keep in mind that Connecticut has no county government; all government services are state- or town-provided.

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127 MS65 July 6, 2017 at 11:32 pm

Actually, property taxes continued to rise. The dispute this year is as the state is running out of money it is now attempting to unload teacher pension costs back to the towns which simply means property taxes will go up even faster. If you are a homeowner it is a zero-sum game; while state and locals push tax burdens back and forth all you know is your total taxes are going up. The next move, being pushed by reps from the big cities in the states is a return to regional government, all in the name of efficiency, but which everyone knows is just another move to suck money out of the ‘burbs and into the dysfunctional cities.

As to state employees I don’t have the numbers handy, but I did look at historical budgets and employee costs (including pension and benefit costs) have gone through the roof since adoption of the income tax, though, as I noted above, the state failed to fund pension plans for years and now faces a staggering unfunded liability. Connecticut taxpayers exist to fund the salaries and retirement benefits of state employees.

It is an unsustainable situation. And I don’t absolve the Republican governors who served before the current Democratic incumbent. Democrats may have controlled the legislature but the governors went along with it.

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128 WILLIAM REEVES July 6, 2017 at 8:00 pm

CT flourished when it had no income tax. And most of those former corporate headquarters didn’t go to NY or Boston. They went South or west.

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129 DF18 July 6, 2017 at 11:52 pm

I dont know the issue but population growth vs expenses seems like a good place to start. As a CT resident, I know first hand that spenders have taken boom times and set new higher budgets. With all the revenue from taxes on RE transactions and income, it’s truly criminal that CT is not in good condition. The infrastructure and congestion is awful in populated areas and over built elsewhere – see location of Bradley airport for stupidity. Hartford, Bridgeport, Norwalk, Stamford and much of New Haven are social and economic disasters, save portions of New Haven where yale money flows. As for Aetna, I laugh – not sure why they need tech savvy employees to monitor and serve HMO/PPO members – the organization is 99% paper pushers and always has been, yet upper management thinks they are some hotsh*t growth company. Stamford has some hope, but is suffering as NY banks and hedge funds unwind big commitments.

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130 Normal July 7, 2017 at 8:06 am

“Why is America’s richest state floundering?
The first answer is: Corporations are leaving. The second answer is: People are leaving.”

Wow, this is a complete reversal of cause and effect. Companies and people are leaving because of the economic conditions.

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131 Boonton July 7, 2017 at 12:12 pm

https://www.statista.com/statistics/206104/resident-population-in-connecticut/

I’m having a hard time seeing any ‘leaving’. We could simply have stability and some fluctuations caused by yearly births and deaths.

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132 MS65 July 7, 2017 at 12:31 pm

Probably the better way to analyze it is looking at net migration. Who is leaving state and who is coming in. Income of those leaving is much higher than those coming into the state which means negative impact on tax revenue which further accelerates the downward spiral. As I was leaving the state treasurer was noting yet another “unexpected” shortfall in tax revenue.

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133 Normal July 7, 2017 at 8:00 pm

MS65 is correct. Virtually every successful working age person I know in CT is planning their exit to a lower cost state.

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134 Ken Schulz July 7, 2017 at 1:35 pm

Just idly speculating here, but I wonder if there are non-economic factors involved, at least in these high-profile cases of small numbers of highly-paid managers being moved to the big city. Is it partly due to changing tastes for activities outside work? I mean, the attraction of being handsomely well-off in Connecticut is that you can settle on an estate with your own swimming pool, tennis court, stables and/or archery range, etc. Maybe these things aren’t as popular now as access to the corporate luxury box for a Knicks or Bruins game? High-end restaurants? Broadway shows? Tastes do change …

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135 Boonton July 7, 2017 at 3:22 pm

It seems to me the ‘solution’ here is some good old Wall Street Finance. Set income taxes, acknowledge that because you have 0.02% making as much as 48% of the state’s population does because of hedge fund managers and other high end but erratic earners so convert it into a bond.

So income tax revenue may swing from say $8B to $15B year over year. So next ten years income tax rates are set to be stable. In exchange for a yearly payment of $11.5B, let Wall Street essentially buy whatever the actual income tax collections are. If things are better the bond owner gets the upside, if things worse then the taxpayers win out at Wall Street’s expense.

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