Connecticut’s Tax Roulette

Democrats in Hartford try to drive more hedge funds out of state.

Connecticut is a gift that keeps on giving to low-tax states. Democratic Gov. Ned Lamont earlier this year pitched a suite of tax increases on everything from Netflix subscriptions to little Rover’s vet bill. Surprise, surprise, the liberals in Hartford have raised his tax bid with a two-percentage-point surcharge on capital gains.

Folks in Connecticut pay taxes on capital gains at the same rate as ordinary income. For individuals earning more than $500,000, that’s 6.99%. Last week Democrats on the Legislature’s finance committee, which is in charge of developing the state budget, approved the surcharge for individuals in the top income bracket.

One reason to oppose a capital-gains increase is the warning sign from the Greenwich real-estate market, a source of property-tax revenue, which has been struggling amid an exodus of high earners. Since Democrats raised income taxes on the wealthy and extended a surcharge on corporations in 2015, Fairfield County’s population has shrunk by 1,500. In 2015 and 2016, Connecticut lost $3.9 billion in net income, mostly to Florida.

Population flight is taking a toll on the state’s economy and budget. Last week the federal Bureau of Economic Analysis reported that Connecticut’s GDP grew a paltry 1% in 2018, 44th in the country and the slowest in the Northeast after Rhode Island. The U.S. economy grew about 3%.

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