Last year Connecticut taxpayers worked until May 15 to pay all of their tax bills, tied with New Jersey. This year we fell behind New Jersey by nine days with our Tax Freedom Day last in the country, according to the Tax Foundation.
Now we work until May 21 to pay all of our tax bills, meaning they consume more than a third of our collective income. It’s troubling that Connecticut residents have to work until May to pay for all layers of government: federal, state and local. But even more concerning is that moving to New Jersey could mean an extra week of take-home pay for many Connecticut residents. (Since the Tax Foundation calculation of Tax Freedom Day considers aggregates, it doesn’t necessarily mean all Connecticut residents would pay less in taxes in other states.)
The Tax Freedom Day calculation highlights the relative competitiveness of state tax codes. Lawmakers should take note. If Connecticut were the only place to live, tax policy wouldn’t matter much. The national Tax Freedom Day is April 24. That means a move to an average state could put nearly a full month of pay back into a Connecticut resident’s pocket.
Part of the elegance of the American system is that it provides variety while maintaining unity. An American can live in one of 50 states. If she chooses Connecticut, she can then choose among 169 municipalities. Multiplied across the states, there are probably thousands of different places to live, just from a tax perspective.
If you have a job in New York City, you can choose among three states. Tax Freedom Day shows how we are falling behind our competitors for commuters to New York.
As the cost of communication and transportation falls, it becomes easier to take Connecticut-level incomes to other states. In that case, the mover can add a lower cost of living to the tax savings.
For many and perhaps even most people, taxes aren’t the first consideration when deciding where to live. But we all have our price. Would you move to Florida for $100,000? How about $100,000 a year? Some Connecticut residents will save more than $1 million in taxes by moving to Florida.
And while the majority of taxpayers cannot save that much by moving to Florida, the taxpayers who could save that much pay a disproportionate share of our taxes. Moving doesn’t hurt them as much as it does those of us who remain in Connecticut. We have to pay extra to pick up the cost of government previously funded by those who depart.
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There are two ways to look at Connecticut’s last-in-the-nation Tax Freedom Day. Either we give up (which I hope you don’t) or we take advantage of our exceptional room for improvement. The road to better tax policy in Connecticut will be a difficult one, but the cause is worthy so I hope you’ll join.
The first step is not increasing taxes to fund the budget this year. The next step is starting to signal that Connecticut wants to stop moving in the wrong direction and move in the right direction instead. There’s some talk about reforming the estate tax among lawmakers. The estate tax provides a small amount of state revenue, less than a percent, while giving significant taxpayers yet another reason to leave for Florida — and bring their annual tax contributions with them.
Whether we start with the estate tax or somewhere else isn’t significant. Connecticut is last when it comes to taxes. We just need to start somewhere.
This column originally appeared in the Lakeville Journal.