A “millionaires”™ tax” that kicked in last October has generated a third less money for Connecticut coffers as expected, confounding the state comptroller and germinating concerns that some high-earners or small businesses have moved income streams to jurisdictions with a lighter tax burden.
In an effort to chip away at looming deficits, the Connecticut General Assembly raised taxes last year on couples making at least $1 million, or individuals earning at least $500,000. The legislature leveled the levy straight at the heart of Fairfield County, which has among the highest average earners in the nation. The new tax was also seen, however, as penalizing small-business owners who report their income using individual tax forms rather than those for corporations.
Speaking in Hartford last month at the Connecticut Business & Industry Association”™s Connecticut Business Day lobbying effort, state Comptroller Nancy Wyman said that while payroll taxes were off 3 percent and estimated taxes used by some earners were down 20 percent, collections from the uppermost tax bracket was off 33 percent.
“The new tax that was just implemented on the higher income earners ”“ it was projected at $600 million,” Wyman said. “It”™s coming in at about $400 million.”
In addition to posing a worry for befuddled lawmakers attempting to balance the state budget, the new data raise questions on why such a large shortfall has materialized ”“ particularly since corporate taxes are coming in higher than expected, a welcome sign for all hoping for an economic rebound and concomitant jobs recovery.
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The unknown is to what degree sole practitioners may be switching to file taxes using corporate forms, rather than individual forms to dodge the new tax.
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More troubling is the possibility that individual tax filers have moved their income reporting to other states, whether through an outright change of residency or other means; a possibility given a new study that illustrates an ongoing “flight of capital” from New Jersey.
In a January report, researchers at the Center on Wealth and Philanthropy at Boston College found that after the Garden State increased taxes on its richest residents beginning in 2004, the state has suffered a net outflow of $70 billion in wealth. It was the third such study following findings by Princeton University and Rutgers University researchers.
Boston College researcher John Havens found that between 1999 and 2003, New Jersey enjoyed a net influx of $98 billion in household wealth ”“ mostly from New York, Pennsylvania and foreign countries. Over the following five years, $70 billion left the state.
What”™s more, those taxpayers may have taken $1.1 billion in charitable giving with them, creating the ironic scenario that in hiking taxes to help pay for services, New Jersey lawmakers may have cut private-sector support of nonprofits that provide many important services, relieving the state of having to do so.
“The flow of households moving from New York state to nearby states fell for both New Jersey and Connecticut between 1999 and 2008,” Havens said in his study. “However it fell proportionately more for New Jersey than Connecticut.”
Havens”™ conclusions were not lost on some Connecticut residents aghast at the new tax and its implications for the economy.
“I”™m from southwestern Connecticut,” said state Sen. Scott Frantz of Greenwich, who also represents parts of Stamford and New Canaan. “There are a lot of successful people down there. I can tell you they have worked their fingers to the bone to get to where they are. They put in 60 to 80 ”“ in many cases 100 hours a week. These are investment bankers; these are people in all sorts of related financial businesses, and the question becomes for them, ”˜How much am I willing to pay?”™”
