As the legislature toils to come to consensus on this year’s budget, we urge them to make decisions grounded in facts, research, and long-term planning. Questions about how to build on state strengths and how to position ourselves for long-term success should dominate the discussion and drive tax and spending decisions.
Connecticut has long prided itself for its high quality of life, with tightly-knit communities, an enviable location and natural beauty, and a highly educated workforce. Innovation happened here thanks to our strong labor force and outstanding public education system. Companies moved here because the state was willing to invest in the infrastructure and services necessary to connect them to the world. These efforts were the key foundations to our shared prosperity. Building upon those foundations should be a priority.
But the very idea of investing in the future is limited today because of a pervasive but misplaced fear that progressive tax policies might drive individuals and companies out of state. We call that fear the “myth of millionaire migration.” Like many unfounded fears, that myth began with bad facts.
Back in 2015, an op-ed compared the average income of the people leaving Connecticut annually from 1993-2010 ($45,000) with the amount in 2012 and 2013 ($147,000). The author concluded that this dramatic – if implausible – increase was a result of the 2011 income tax hikes. The actual explanation, however, was that the IRS changed its measurement methodology fundamentally beginning with the 2011-2012 data, stating explicitly that “due to the methodological changes between the two, the data are not directly comparable.” The damage done by the misrepresentation of that data has been extensive, fueling a false narrative that Connecticut is facing a mass exodus of its wealthiest residents.
It is true that Connecticut is experiencing population decline. But who’s really leaving? A brand new report published by CT Data Collaborative sets the record straight: “DRS data show the lower-income tends to out-migrate from Connecticut at greater rates than the high-income, data which is confirmed by IRS data.” The chart below shows a dramatic increase in the number of high-income tax returns filed in our state from 2010-2015, further debunking the millionaire migration myth.
Do the policy responses reflect the facts? Sadly no. Preventing out migration of low-income families would require attention to issues of affordable housing, living wages, transportation, and inclusive economic development. New revenue would be necessary. But in the current environment, the focus is on austerity and cuts, not investment and growth. The focus is also on protecting against the mythical millionaire migration.
Consider this: All current budget proposals would weaken the estate tax, which would equal an average tax break of $100,000 for approximately 600 households who pay the tax, exacerbate wealth inequality, and cost $60 million when fully implemented. At the same time, lawmakers are raising taxes on low-to-middle-income folks by cutting the Earned Income Tax Credit, which helps make work pay for approximately 200,000 working families. On top of that, they’re cutting or eliminating the property tax credit, which offsets the unfair property tax for some 800,000 moderate-income households.
We and others have repeatedly cautioned against the way that migration data is interpreted and reported in Connecticut. We have cited research showing that millionaires are much less likely to move than the rest of the population, and when they do, income tax rates were inconsequential to their relocation decisions. As such, research also finds that people move for jobs, family, housing costs, and climate (that latter is why even in no-income-tax New Hampshire, Florida is the top destination for its residents).
The millionaire migration myth does not stand alone. A corollary to the myth exists for corporations, with the oft repeated claim that taxes are driving big corporations out of the state. But the facts tell a different story. We know why GE left and Aetna’s leaving, and it wasn’t because of taxes. They left because they sought the talent that thriving cities are able to attract. And what do they want? They cited infrastructure and education investments, as well as budget stability.
Fortunately, it’s not too late for lawmakers to craft a final biennial budget that reflects the facts: who’s leaving and why they leave.
Two bold solutions could begin address these challenges:
Reform our property tax system: Our proposal would give a tax break to 2.7 million residents who pay some of the nation’s highest and most unfair property taxes. It would also fully fund our cities who, because they host a disproportionate number of hospitals, universities, and government buildings – all of which benefit the entire state – are starved for resources.
Modernize the sales tax: Failure of our laws to keep up with a service-based economy and the growing number of politically-connected industries that are exempt from the sales tax has led to a deterioration of sales tax revenue. Broadening the sales tax base by eliminating exemptions and including services is a proposal that, by strengthening this revenue stream, begins to addressing budget stability, while also ensuring everyone contributes to our collective challenges in the short-run.
We recognize that each of these proposals is as wide-sweeping as they are politically difficult. But they reflect the facts, and moreover, they reflect an understanding that we are all in this together. We are the ingredients of a vibrant, strong state.
Ellen Shemitz is Executive Director of Connecticut Voices for Children, where Derek Thomas is a Fiscal Policy Fellow.