This time of year, children are told that Santa Claus is making a list and checking it twice to find out who has been naughty or nice. However, Santa isn’t the only one who makes a list every year. Leading experts and organizations across the country also rank states by their public policy. In this ongoing series, we will see which “naughty” lists Connecticut landed on and make small suggestions to help the state be a little “nicer.” Check back every day from now until Christmas for a new entry!
When Governor Dannel Malloy admitted that the state’s recent trend of raising taxes wasn’t working, and that economic growth was necessary, it signaled a shift in attitude toward the right direction. How to foster economic growth should consistently be a factor and goal in any public policy debate or legislative issue. The state needs revenue, but by chasing revenue through tax increases, it has actually chased people, and revenue, away.
For that reason, Connecticut landed on numerous naughty lists this year.
One such list is released every year by the American Legislative Exchange Council’s Center for State Fiscal Reform. In the latest edition of the Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, Connecticut ranked 47 for economic outlook.
As a membership organization of state legislators, ALEC research tends to emphasize factors within the control of public officials. Rich States, Poor States’ economic outlook rankings are determined by 15 equally-weighted factors including fiscal, labor, and debt issues. Connecticut’s policies aren’t very nice, resulting in a ranking of 25 or worse in 10 of the 15 categories.
Massachusetts, which used to be known colloquially as “Taxachusetts,” is now a nicer state than Connecticut. The Bay State ranks better in virtually every category, with Connecticut outperforming it in only two factors. Massachusetts has lower tax rates for personal and corporate income, as well as lower sales and property tax burdens.
Rich States, Poor States, however is not just a tax index. It is a comprehensive analysis of public policies that impact a state’s economy. Massachusetts outperforms Connecticut under its state liability system, average workers’ compensation costs, and the rate of public employees per 10,000 of population.
The economic impact of state policy is reflected in Rich States, Poor States’ economic performance rankings. Connecticut made that naughty list, too, ranking 45th in the nation. From 2004 through 2014, Connecticut ranked among the nation’s ten worst for cumulative gross domestic product, absolute domestic migration, and non-farm employment growth.
On the other hand Massachusetts' recent shift to better public policies resulted in a better, albeit unspectacular, ranking of 30.
Massachusetts also made the nice list for one major entity: General Electric.
To escape this particular naughty list, Connecticut has a few options. While pro-growth tax reform would serve this state and its taxpayers well, there is limited appetite for it until spending is reigned in. North Carolina, a state which controlled spending to allow for pro-growth tax reform, is reaping the benefits.
One tax that contributes to domestic out-migration, discourages saving and retirement, and punishes small business is the estate tax. Other states in the region have recently reformed their estate taxes, increasing thresholds so fewer estates are impacted. Connecticut, at the very least, should maintain regional parity, but ideally should eliminate it altogether. It would be nice if people could retire here and pass along their life’s work to their families.