In the US, states try to fill their coffers by taxing the very wealthy. When this drives the wealthy to move to more favorable tax environments, they turn around and offer subsidies to the companies they run.
From an editorial in the Wall Street Journal: Connecticut lost General Electric’s headquarters to Massachusetts earlier this year, so Governor Dannel Malloy is now trying Illinois’s business model: Raise taxes, and then when businesses threaten to leave, write a check to other businesses so they’ll stay.
Last week the Governor presented Bridgewater hedge fund with $5 million in grants and $17 million in low-interest, forgivable loans to renovate its headquarters in Westport along the state’s Gold Coast. Mr. Dalio could probably dig up $22 million from petty cash.
The Governor’s office says tax revenues could shrink by $4.9 billion over the next decade if all of Bridgewater’s employees departed. After Appaloosa Management’s David Tepper escaped to Florida from New Jersey last year, Trenton’s budget gnomes sounded the public alarm.
Like other states with progressive tax codes, Connecticut is dependent on high earners. As recently as 1990, the state had no income tax and had long been a refuge for companies and employees fleeing high-tax New York. But as usual after an income tax is introduced, the political class keeps raising the rate.
Raising taxes has backfired on the state economy and budget. Higher taxes have also depressed business and income growth.
Fitch Ratings and Standard & Poor’s downgraded Connecticut debt last month because of structural deficits and slow income growth, which Mr. Malloy calls “our new economic reality.” Fitch noted that employment growth between 2012 and 2015 was half that of the U.S. average. Median home prices have declined during the past two years.
Connecticut has lost 105,000 residents to other states over the last five years while experiencing zero real economic growth.
Here is the new-old progressive governing model: Raise taxes relentlessly in the name of soaking the 1% to pay off government unions. When that drives people out of the state, subsidize the 0.1% to salvage at least some jobs and revenue. Ray Dalio gets at least some of his money back. The middle class gets you know what.
