Connecticut Governor Proposes another Significant Tax Hike

February 7, 2007

On the heels of Pennsylvania Governor Ed Rendell’s massive tax hike proposal yesterday, Connecticut Governor Jodi Rell proposed a tax hike today that could cause equal economic harm.

Governor Rell wants to increase tax rate from 5 percent to 5.5 percent on income over $10,000 and increase the cigarette tax from $1.51 to $2.00 per pack.

While the Governor did not release revenue estimates with her income tax proposal, we know that Connecticut’s income tax brought in approximately $5 billion in FY 2005. So her increase might be expected to raise as much as $500 million. The cigarette tax increase will raise taxes a substantial amount too; $86.4 million in fiscal year 2008 and $82.8 million in 2009.

Connecticut already has the highest total tax burden in the country and 12th highest state and local tax burden. Governor Rell’s proposals will increase both.

Of course a state’s tax burden alone is not enough to determine whether a state’s tax system is economically punitive. How a state collects its tax burden is as important as the burden itself.

Unfortunately for Connecticut, it has an economically damaging business tax climate on top of high tax burdens, according to our State Business Tax Climate Index. The Governor’s proposal will drive Connecticut’s competitiveness down.

Connecticut lawmakers should be aware that states that have better tax climates generally experience higher rates of economic growth. As taxes climb and Connecticut’s business climate deteriorates businesses, jobs and people will leave the state.

Governor Rell apparently has little regard for the state’s toothless cap on spending growth as this is the second year in a row she proposes to go over it.

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