In Fiscal Year (FY) 2016, Connecticut collected $25.8 billion in state and local taxes—or $7,205 for every man, woman, and child. 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?
To better answer this question, this analysis will calculate Connecticut’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
As shown in Chart 1, Connecticut’s state and local tax burden (tax collections divided by private sector personal income) was the twenty-first lowest in the nation for FY 2016 at 13.5 percent—or -6 percent below the national average of 14.3 percent.
#Connecticut state and local #taxburden in FY 2016 was the 21st lowest in the nation at 13.5%— -6% below US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #CTpol #CTleg #CTsen #CTgov #PolicyData (click to tweet)
As shown in Chart 2, Connecticut’s tax burden has increased over time by 83 percent to 13.5 percent in FY 2016 from 7.3 percent in FY 1950.
#Connecticut state and local #taxburden has increased 83% between FY 1950 (7.3%) to 2016 (13.5%) http://bit.ly/2FX9C8F @keypolicydata #CTpol #CTleg #CTsen #CTgov #PolicyData (click to tweet)
To put Connecticut’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Connecticut’s 13.3 percent tax burden is greater than these combined industries: manufacturing (10.3 percent) and educational services (2.5 percent).
#Connecticut state and local #taxburden > manufacturing and educational services http://bit.ly/2FX9C8F @keypolicydata #CTpol #CTleg #CTsen #CTgov #PolicyData (click to tweet)
Connecticut’s lower than average tax burden is driven by a low sales tax burden (2 percent, 10th lowest), and all other tax burden (1.4 percent, 4th lowest). This is partially offset by a high property tax burden (5.4 percent, 10th highest), and individual income tax burden (3.9 percent, 13th 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 477 percent to 3.9 percent in FY 2016 from a mere 0.7 percent in FY 1991.
If Connecticut had never enacted an individual income tax, their tax burden would have been 9.5 percent in FY 2016 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.
f course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Connecticut—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
Connecticut has 8 counties and their local government tax burden are shown below (from highest to lowest):
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.