Connecticut, Nation’s Wealthiest State, May Be Tapped Out On Taxing The Rich

Connecticut’s governor should have listened to the wise words of Margaret Thatcher sooner.

And what were those words?

“The problem with socialism is eventually you run out of other people’s money.”

It turns out Connecticut is having trouble paying its bills, even though the Constitution state’s favorite pastime is taxing the rich.

Connecticut is about $400 million in the red–which has prompted a downgrade in the state’s credit ratings.

According to The Wall Street Journal, “income-tax collections will fall in fiscal 2017 for the first time since the recession,” and “About $200 million of the drop in receipts came from the state’s closely watched top 100 earners, who are the source of an outsize proportion of the state’s revenue.”

The Governor bet on the rich to keep Connecticut in the green.

“Gov. Dannel Malloy has twice before bet that taxing the wealthy would help solve the state’s fiscal problems. But neither increase resulted in sustained revenue growth, according to his administration, which says it would be a mistake to do it a third time,” Joseph De Avila writes.

Is this just a problem for Connecticut?

The Wall Street Journal reports this is happening to several states, but Connecticut faces significant problems:

Connecticut’s fiscal troubles come as a majority of states face budget holes this cycle, according to a recent report issued by Standard & Poor’s. At least nine states are considering some form of tax increase, such as raising corporation taxes and sales taxes, according to the report.

Connecticut is one of seven states, including Pennsylvania, New Jersey and Illinois, that is vulnerable to fiscal stress “even as the broader economy shows signs of gathering momentum,” the report concluded.

It’s a strange turn for Connecticut, which has the highest per capita income in the country, according to the Bureau of Economic Analysis, and is home to hundreds of hedge funds, Yale University, and businesses like insurer Aetna Inc. and industrial giant United Technologies Inc.

The problem is these tax increases discourage the type of people Connecticut relies on from moving there and staying there. “The number of tax filers leaving Connecticut”, the Wall Street Journalreports, “have exceeded the number of filers moving into the Nutmeg state since at least 2010.”

Currently, the top income-tax rate is 6.99%.