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In Fiscal Year (FY) 2011, Connecticut collected $22.8 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Connecticut taxpayer can afford this level of taxation.
As shown in the charts below, Connecticut’s state and local tax burden (tax collections divided by personal income) was the thirteenth highest in the nation for FY 2011 at 11.2 percent—or 7.5 percent above the national average of 10.5 percent. Connecticut’s tax burden has grown significantly over time at 69.5 percent to 11.2 percent in FY 2011 from 6.6 percent in FY 1959.
Hawaii’s high tax burden is driven by a very high property tax burden (4.6 percent, 8th highest), and individual income tax (3.2 percent, 7th highest). This is offset by a lower than average corporate income tax burden (0.33 percent, 22nd highest), sales tax burden (1.6 percent, 41st highest), and all other tax burden (1.6 percent, 43rd highest).
Any discussion of Connecticut’s tax burden since 1950 would be incomplete without mentioning the saga of the individual income tax. For most of this time-period, Connecticut had no, or very small, individual income tax. It wasn’t until 1991 that the income tax exploded growing by a whopping 484 percent to 3.2 percent in 2011 from a mere 0.55 percent in 1991.
If Connecticut had never enacted an individual income tax, their tax burden would have been 8 percent in 2011 and ranked as the second lowest in the country. Adding insult to injury, the economic results from such a dramatic increase in the tax burden have been dismal. A recent Forbes article on Connecticut’s income tax found depressing economic results:
"Connecticut’s downhill slide seems to have speeded up after 1990. That year, former Connecticut Senator Lowell P. Weicker Jr. campaigned for the governorship by vowing to resolve the state’s financial problems without introducing an income tax. After he was elected, he revealed his true colors and signed an income tax into law. Perhaps some Ivy League arrogance (Weicker went to Yale) impaired his ability to understand how incentives like lower taxes stimulate enterprising spirits."
"The income tax failed to achieve the wonders Weicker claimed. By siphoning more money out of the private sector, the Connecticut income tax reduced the amount of money available for private sector hiring and reduced the amount of money available for consumer spending. Federal Deposit Insurance Corporation reported, 'no other state in the country has had such stagnation of employment.'"
More proof that taxes matter . . . Connecticut should think of reducing taxes in order to jumpstart their anemic economy.
Click here to view tax burden data by state, type of tax, and for years 1950 to 2011.