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Report: Taxing the rich won’t make them leave Connecticut

Governor Ned Lamont in Newtown in October 2020 celebrating a hot housing market brought on by New York City residents moving here during the pandemic.
CT Mirror
Governor Ned Lamont in Newtown in October 2020 celebrating a hot housing market brought on by New York City residents moving here during the pandemic.

A progressive policy group with strong ties to labor took aim Thursday at one of Governor Ned Lamont’s strongest assertions: that financing tax relief for the poor and middle class by raising rates on the wealthy would prompt elites to flee the state.

A Better Connecticut Institute [ABCI] released an analysis concluding Connecticut’s richest taxpayers decide whether to live based on chiefly on quality of life, and proximity to family and business — not on the state income tax’s top marginal rates.

“Let’s face it: Connecticut is really good to the rich, and they’re not going anywhere,” Kim Forte, executive director of ABCI, said during a late morning, live-streamed press conference.

Why, then, after two state fairness studies concluded the poor and middle class effectively pay a much higher share of their earnings in taxes than the wealthy do, has the governor staunchly opposed bills to seek more from top earners?

“The reality is there is a lack of courage in the Executive Branch,” Forte said.

And the migration myth that Lamont and others have offered, added Bilal Sekou, president of ABCI’s board of directors, has pushed low- and middle-income households closer to poverty and exacerbated racial inequalities in education, health care, housing and economic opportunity.

“It has been a pervasive leech on our budget and revenue planning for the state,” Sekou said. “We believe in a Connecticut in which no one needs to suffer in the advancement of industry.” [Sekou is the chairman of the board of directors of the CT Mirror.]

The institute, a nonprofit coalition formed by labor, religious and academic leaders to promote “equitable policy solutions that build healthy communities,” commissioned a study from demographic consultant and migration scholar Thomas Cooke, a professor emeritus of geography from the University of Connecticut.

Ranking second to Massachusetts among all states in per capita income, and third in terms of households with at least $1 million in assets, Connecticut has no shortage of wealth, according to Cooke.

One percent of all adults here earn more than $819,630. Only in the District of Columbia does the top 1% of earners average more.

“The wealthy and those with high incomes are more capable of moving than other populations; nonetheless, they remain rooted and concentrated in high-cost-of-living enclaves,” Cooke wrote. “Connecticut is a case in point.”

More importantly, the researcher said, “there is a powerful narrative, built on faulty data and anecdotes, that wealthy and high-income residents are fleeing the state due to the cost of living, taxes, and public finances.”

Between 1985 and 2020, U.S. Census data shows “a small net out-migration” from Connecticut that statistically, is effectively zero and similar to that of nearby states, Cooke wrote in his study.

But while that might seem unbelievable considering the many stories of wealth exodus that many politicians share, Cooke warned not to believe everything one might hear.

Citing research from the The Panel Study of Income Dynamics conducted by the Survey Research Center at the University of Michigan, Cooke noted that 13% of adults surveyed between 2011 and 2017 indicated they “definitely” were planning to move, but only 14% of those pledged movers actually relocated.

Cooke also noted that a 2016 study conducted by Cornell sociologist Cristobal Young and by representatives of U.S. Department of Treasury and Stanford University analyzed tax data for every million-dollar earner in the U.S. while also focusing closely on state income tax hikes aimed at the wealthy in California and New Jersey in the mid-2000s.

It found wealthy households relocated less frequently than did middle- and low-income families. And wealthy households that owned a local business were particularly fixed.

Connecticut actually gave its wealthiest households a huge tax break in 1991 when it created the state income tax. Connecticut had been taxing capital gains earnings at 7%, and dividends and interest at 13% prior to that. But when the income tax was adopted in 1991, the state initially taxed all earnings at 4.5%.

Cooke said Census data showed the income tax had no statistical impact on migration in Connecticut.

But Lamont, a Greenwich businessman, insists migration patterns are more fragile than that, and things could change if the state starts asking more of its top earners.

Connecticut has garnered many headlines in recent years for the tens of billions of dollars of pension and other retirement benefit debt it amassed between 1939 and 2010.

And while state government has begun to move in the other direction in recent years, that debt is projected to place significant pressure on state finances well into the 2030s and possibly 2040s. Many legislators, from both parties, have echoed the governor’s concern that this burden can’t be dumped on one class of taxpayers, especially in just one generation.

“The governor could not be more clear — he wants more taxpayers, not more taxes,” Chris Collibee, Lamont’s budget spokesman, said Thursday. The governor in February proposed the state’s first income tax rate cut since the mid-1990s in response to record-setting surpluses in recent years.

Lamont hopes that relief will stimulate more economic growth, while a strict adherence to existing budget controls that restrict spending and borrowing while forcing more savings will continue to whittle debt down gradually.

But progressives counter that Connecticut’s poor and middle class have watched their standard of living slip for decades. Vital programs — including health care, education, municipal aid and transportation — have been starved for years as debt costs consume much of the state’s budget.

Collibee also noted that the study found some taxpayers will migrate for economic reasons, and it doesn’t take many uber-rich households to relocate to have an impact on the state’s revenue stream.

The state’s chief business lobby, the Connecticut Business and Industry Association, also warned now would be a bad time to consider boosting higher taxes on wealthy households or on major corporations.

While state government’s coffers are flush right now — with $3.3 billion in the rainy day fund and a $3.2 billion surplus forecast for this fiscal year — Connecticut’s reputation as a high-business-tax state remains an impediment to job growth, DiPentima said.

“Why would we be looking to raise taxes on anybody in this state and jeopardize the surpluses we have coming in?” he added.

Launched in 2010, The Connecticut Mirror specializes in in-depth news and reporting on public policy, government and politics. CT Mirror is nonprofit, non-partisan, and digital only.