Connecticut”™s new “millionaire”™s tax” sent it plummeting on an annual state tax competitiveness index published by the Tax Foundation ”“ though the state still beat out rivals New York and New Jersey.
During the Connecticut gubernatorial campaign, Tom Foley kept taxes at the forefront of the debate, pledging to hold them in check even as he repeatedly averred Dan Malloy would raise them. Malloy said he would do all he could to avoid raising taxes but did not rule it out, particularly tax hikes on the wealthiest residents in the state.
Connecticut dropped nine rungs on the Tax Foundation report to 47th overall, after hiking the top tax rate from 5 percent to 6.5 percent on individuals making at least $500,000, and couples making at least $1 million. Only New Mexico suffered a steeper drop on the index.
Connecticut, New Jersey, California and New York have the worst taxation structure in the nation, according to the Tax Foundation. All four suffer from the same conditions: complex, non-neutral taxes with comparatively high rates. Connecticut continues to be bedeviled by its high property taxes, trailing only those of Tennessee according to the foundation.
New York dropped one slot to the bottom of the bunch by having the third worst individual income tax, the ninth worst sales tax and the worst property tax. By contrast, Vermont moved out of the bottom 10 for the first time in the study”™s history by dropping its top individual income tax rate to 8.95 percent, from 9.4 percent.
South Dakota led all states for tax competitiveness, with New Hampshire tops in the Northeast and seventh overall. Florida was the only eastern state to crack the top five.
The Tax Foundation ranks annually major state taxes nationwide, including corporate taxes, individual income taxes, sales taxes, unemployment insurance taxes and property taxes. As a whole, U.S. companies pay among the highest corporate tax rates of those in any of the industrialized countries, with a top federal rate of 35 percent and states levying their own corporate taxes in varying degrees.
The organization publishes the index annually in hopes policymakers will use it to pinpoint how changes in their tax systems change their state”™s standing in relation to competing states, on the theory that companies will locate where they can get the best competitive advantage.
The Tax Foundation opposes states handing out tax incentives to individual companies as an inducement to relocate, such as the case of Connecticut luring Starwood Hotels & Resorts Worldwide Inc. to Stamford from its base in White Plains, N.Y., with Starwood slated to receive as much as $95 million in incentives. Starwood Hotels”™ stay in Westchester County lasted less than 15 years after the company relocated its headquarters there from Arizona.
“Lawmakers create these deals under the banner of job creation and economic development, but the truth is that if a state needs to offer such packages, it is most likely covering for a woeful business tax climate,” said Kail Padgitt, a Tax Foundation economist, in a note accompanying the report. “A far more effective approach is to systematically improve the business tax climate for the long term so as to improve the state”™s competitiveness.”
