ANNIVERSARY OF A TAX DISASTER
August 24, 2006
A new paper released by the Yankee Institute documents the negative consequences of the broad-based income tax passed by Connecticut legislators and signed into law in 1991.
Among the findings, author D. Dowd Muska notes:
- The income tax failed to produce fiscal stability. By 2000, budget deficits had returned, and with them tax hikes, heavy borrowing, and the complete withdrawal of the state's "rainy day fund."
- Revenue from the income tax did not lead to property-tax relief -- between 1991 and 2003, Connecticut property-tax collections rose 19.8 percent.
- Job growth has been nonexistent since 1991 -- the Federal Deposit Insurance Corporation recently concluded that since the early 1990s, "no other state … has had such stagnation in employment."
- Median household income in Connecticut has fallen, in inflation-adjusted terms, since 1991 -- nationally, median household income has grown.
- Over 240,000 native-born citizens fled Connecticut between 1990 and 2002, and in the 1990s, no state lost a greater percentage of its 18-to-34-year-olds.
It's time to admit that Connecticut's income tax was a major policy blunder, says Muska. The state should consider shifting to a sales tax on all retail transactions, with a generous rebate program for low-income households. Doing so would likely produce a more reliable revenue stream, as well eliminate the income tax's strong disincentives to work and invest.
Source: D. Dowd Muska, "Fifteen Years of Folly: The Failures of Connecticut's Income Tax," Yankee Institute, August 2006.
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