Policy Corner: The Steadiest Habit: Raising Taxes

Should I stay or should I go now?
If I go there will be trouble
And if I stay it will be double
So you gotta let me know
Should I stay or should I go?

                                                — (apologies to) The Clash (1982)

Well, they’ve told us. Nearly four decades later, the Connecticut General Assembly has replied to the old New Wave refrain. Worse than the Bourbons, who learned nothing and forgot nothing, our legislative leaders in this Land of Steady Habits learn nothing and remember nothing.  

These steady, learn-nothing habits have brought about the predictable, change-nothing result: a biennial budget that will, if fully enacted – and if complimented by all of the other bills that raise taxes in fact if not in name – raise total taxes on the state by more than 10 percent, or more than $2.5 billion every year.

This would be the third massive tax increase in this decade alone. Do we think that it would be the last one? Don’t bet on it.  

The logic of the tax increases themselves, and of the General Assembly’s unwillingness to learn from past failures, fairly ensures there will be another one. And given the cadence of developments, we can expect it by 2023, at the latest.

What else will be true in 2023? Will your house value, if you own a house, have finally recovered from the price decline that accompanied the Great Recession? It looks highly doubtful. 

By the end of 2018 – a decade after the recession – Connecticut’s property values were still only 80 percent of what they had been in 2007. Since then, property values in the Hartford area have fallen by more than 10 percent.  Fairfield Country property owners are selling at huge discounts, giving up hope of holding out for a recovery and salvaging what they can before things get worse.

Are they right? Should you follow them? Or are good times for Connecticut finally just around the corner?

Whether they are willing to recognize it or not, legislative leadership is implicitly telling the people of Connecticut that it’s time to go, regardless of age, job or economic condition.

And that isn’t good for Connecticut. So, let’s look at how these proposals from the legislature will affect everyone’s bottom line.

• Connecticut’s Highest Taxpayers

Though the situation is urgent for everyone, it is clearly most urgent for the wealthy. Do you make more than $2 million a year? Good for you! 

If you do make that sort of money, though, some lawmakers have all but ordered you to leave.  

You already pay 7 cents out of every dollar you earn to the state – a huge bill that mostly goes to paying for the state’s real privileged class (government workers) and its underprivileged in the form of social services.

Apparently, that’s not enough though. By proposing a 2 percent tax increase on capital gains, the Finance, Revenue and Bonding Committee declared on May 1st that for the privilege of living in Connecticut and contributing so much more than most of the rest of us to keep the state running, you will be forced to throw in 9 cents on the dollar.

The 357 families who pay the most income tax in Connecticut already pay 10 times as much income tax as the entire city of Bridgeport, while using essentially no state services.  

But paying thousands of times more tax than your fellow citizens, apparently isn’t enough. Paying yet a few hundred million dollars more: that’s fair – for now.  

So it can’t be any clearer: more and more will be demanded of you every few years with no end in sight. Plus, the added joy of constantly being demeaned and insulted for not wanting to pay more. There is no reason to believe that this legislature will stop raising your taxes, so there’s very little choice but to pack up and go.

That choice won’t be costless. If you’re like almost everyone else in Connecticut, your house is worth a lot less than it was a decade ago. Holding on for things to get better, though, only makes sense if things really are likely to get better. Are they? 

If the legislature has its way, your taxes are going to rise again. If this tax bill goes through Connecticut will already have the sixth-highest marginal tax rate in the country. Will it stop there? History suggests that if this tax hike goes through, there’s no reason to expect anything but more in the next few years – regardless of what elected officials say when they want to get elected or re-elected.

This being the case, is there any reason to expect your property values to recover? They’re already falling again in 2019. Another massive tax increase will cause at least some of your neighbors to leave, while it will warn off anyone who could afford your house from moving to this state. 

If the market is falling, then you’ll take less of a bath on the house by selling soon than by holding on. And if you move to a lower or no income-tax state, you’ll be able to start rebuilding that equity all the sooner, and to do it with more money in your pocket.

• The Middle Class

Middle class families will be buffeted by tax increases as well. 

On a day-to-day basis, they will pay an extra percent for every salad or pizza; an extra 5.35 percent on every download; an extra 6.35 percent on every trip to the dry cleaners and every trip anywhere in an Uber – the list goes on and on, plinking through the way we in the middle class tend to spend our money.  

Depressed by this thought and want a beer? There will be an extra 10 percent on that. Settle for a Diet Coke? An extra nickel on the deposit. Are you bold and self-satisfied – greedy, really – enough to want a six-pack of either? Sorry, that’s another dime for the grocery bag to put it in. This tax bill will literally nickel and dime us to death.

But, as Johnny Olson used to put it, that’s not all.  

Your property values haven’t been doing any better than anyone else’s: you’re still 20 percent under water from 2007 and falling as well. And if the capital-gains tax increase goes through, and the result is a flight by Connecticut’s highest-value home owners, the resulting price drop is going to ripple through the housing market, depressing housing prices even further. As a result, you will also face the ugly question: if housing prices are going to continue to fall, shouldn’t I sell out as soon as possible?

That question comes with an extra stab of urgency, however, because the capital gains tax is going to reach down out of the highest tax brackets to hack away at your already diminished retirement savings.  

If you’re like most members of the middle class, the primary source of your retirement savings is your house. If you lived in almost any other state, your house value would not only have bounced back to its 2007 values but risen substantially. Because you live in Connecticut, the land of Steady Government Failure, you’ve taken a huge cut.

The middle class, then, like the wealthy, has been told to fend for itself. Will you stay for more and more of this every few years while your house value sinks compared to everywhere else, or will you go now?

• The Working Poor

The working poor will be nickeled and dimed the same way as everyone else – a coke, a beer, a grocery bag, a dry-cleaned shirt, an Uber ride, a salad or a slice, all higher – with the exception that the working poor by definition have fewer nickels and dimes to lose to the government, and so will feel the seizure of each coin all the more.  

The biggest slams to the working poor, though, come in other forms of this session’s tax grabs.  

The greatest of these comes from tolls. The state has estimated that tolling will cost the average family about $800 a year. Who amongst the working poor has a spare $800 to give to the state? And then an extra couple of bucks from all the nickeling and diming with every trip to the store?  

Another slap comes from the proposed minimum-wage increase. That mandatory increase will be a boon to those who make minimum wage and keep their job and all of their hours; everyone else will be hurt by fewer hours, fewer jobs and higher prices for goods.

We have reviewed these proposals elsewhere and will do so again. Suffice to say, the state ends up in downward spiral: The tax increase hurts the economy and pushes high taxpayers and businesses out of state, which in turn “requires” another tax increase a few years later, and leaves fewer jobs for those looking for work, or for better work.

Who amongst the working poor wants to hang around to see their taxes constantly rachet up and their opportunities constantly narrow?  

Other parts of the country are booming. If you’re trying to move up the ladder and build a career and economic security for yourself, why on earth would you stay here, where the state regularly cripples all of your efforts?

• The Legislature’s Refusal to Learn, or to Remember

There is a surfeit of evidence that the huge tax increases of 2011 and 2015 hobbled Connecticut’s economy, and that this new tax increase would – especially if tied to tolls, a minimum-wage increase, an escalating payroll tax to pay for an unsustainable and ill-designed paid FMLA program, and other economy killers that have been passed through to floor consideration this year – have exactly the same effect.  

The leaders of the General Assembly who have patched together these new budget proposals are clearly not paying attention. 

They ignored business leaders who said they’d leave if the 2015 increases were adopted. When they were adopted anyway, the businesses left, and the economy suffered. Recently, a leader of the progressive wing in the legislature told a reporter that explanations of why they are leaving provided by people who are leaving cannot be used as evidence of why people are leaving Connecticut.  

Those who advocate for higher taxes assure us that if people are leaving it’s because it’s cold in Connecticut and sunny in Florida — as if Connecticut residents aren’t leaving for locations all across the country; or that Connecticut’s weather had suddenly grown chillier than it was in the state’s heyday.  

Of course, the legislature – and, for that matter, the administration – would have to pay more attention if the state’s own research demonstrated the debilitating effects of these repetitive tax hikes.  

This explains why one of the only lines the administration and legislative leaders found to cut from the budget was to cancel the tax-incidence report scheduled for next year.  

That report, which is supposed to occur every two years, shows the effects of the state’s taxing and budgeting decisions. It was last issued in December of 2014. The legislature then cancelled the 2016 and 2018 reports. Now the governor and the legislative leadership have agreed to cancel the December 2020 report as well. Why? Probably because it would have shown the negative effects of Connecticut’s multiple tax increases.  

They refuse even to find out, or to allow others to, or to acknowledge irrefutable parades of information assembled by others and presented to them in easily digestible form. All of this makes it as clear as can be that they know what they are doing to Connecticut, and don’t care.  

We all together, have about a month to make them learn, remember, and change – substituting spending cuts for these massive tax increases, and all of the other tax-in-all-but-name hikes scattered through this year’s pending legislation.

If we fail then, at some length, we end where we began.  Everybody together, on three:

Should I stay or should I go?