(National Sentinel) Economics: Most reasonable people understand that governments need revenue so they can operate and provide basic services to the people, and to get that revenue, governments must raise it from the people.
This is done in a number of ways: Direct taxation on labor (payroll taxes), taxation on consumption (sales taxes), taxation on personal property, and fees (licensing, penalties, etc.)
Sometimes governments go too far in their taxation efforts. They go to the well once too often and raise tax rates to a point where they begin to produce negative, not positive, economic returns. That happens when those who are being taxed have decided they are paying more than “their fair share” and seek cheaper, less-tax-heavy economic climates.
That’s what’s going on in deep-blue Connecticut, whose Democratic governor, Dannel P. Malloy, and Democrat-dominated state Legislature have taxed and taxed and taxed – and want to tax again – their industrial, business and millionaire base so heavily they are running off their primary sources of revenue, leaving the state with massive deficits (and more to come).
As reported by The Wall Street Journal:
The Aetna insurance company has been based in Hartford, Conn., since 1853, but this week it said it is looking to move to another state. Governor Dannel Malloy has pledged to match other states’ financial incentives, but taxpayer money can’t buy fiscal certainty and a less destructive business climate. That’s the real problem in Connecticut, which saw GE vamoose to Boston last year and which even Mr. Malloy now seems to recognize.
Gov. Malloy has spent two terms treating business as a bottomless well of cash to redistribute to public unions. Now that his state is losing millionaires and businesses, he has seen the light. But the price of his dereliction will be steep.
State bean counters have had to regularly revise downward tax revenue, leaving billions in budget shortfalls:
Last month the state Office of Fiscal Analysis reduced its two-year revenue forecast by $1.46 billion. Since January the agency has downgraded income-tax revenue for 2017 and 2018 by $1.1 billion (6%). Sales- and corporate-tax revenue are projected to fall by $385 million (9%) and $67 million (7%), respectively, this year. Pension contributions, which have doubled since 2010, will increase by a third over the next two years. The result: a $5.1 billion deficit and three recent credit downgrades.
In a bid to curb the outbound flight of the tiny state’s tax base, Malloy and the legislature have offered tax incentives and breaks for hedge fund managers and other industries; but that has only eroded revenue even further.
The short version is the same old song-and-dance for far-Left, uber-liberal state governments run by Democrats: Over-promising benefits and goodies to favored constituents in order to keep them politically reliable when it comes time for reelection.
The outcome is always the same – fiscal disaster and flight of tax base to cheaper, less regulatory climates. Illinois is a perfect example of the kind of economic basket cases Democrats create. California is trending that direction with its insatiable appetite for the people’s money. Ditto New York. New Jersey is headed down the same path.
So, now what for Connecticut? None of the options for the state’s Democraic-inflicted slow economic death are good:
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.
Meanwhile, business-and-taxpayer-friendly states keep growing and growing and growing…