Government Spending

Lessons Never Learned

One state is trying to dig itself out of a hole… by digging deeper.

 

Connecticut, just as with other progressive Blue States such as Illinois and California, is in a fiscal crisis. Policymakers in Connecticut have relied on increasing taxes and spending. “After eight years of uncontrolled spending and two of the largest tax increases in the history of the state…Connecticut desperately needs a new economic direction,” wrote Bob Stefanowski, who was the Republican candidate for Governor in 2018.

 

Connecticut is confronted with a $3.7 billion deficit, and it has one of the worst unfunded pension liabilities of close to $118 billion. It appears policymakers are looking to continue the same path of taxing and spending. Spending may increase by $2 billion, while policymakers are looking at extending the sales tax to cover a multitude of services and adding $50 million in taxes on small businesses.

 

The high tax rates and poor economic climate has resulted in both businesses and people leaving the state. The most notable example was when General Electric left the state because of tax increases. An interesting part of this story is that Connecticut’s economic development incentives helped deepen the economic crisis, as explained by the Yankee Institute for Public Policy:

“These programs [economic development incentives] spend more of the state’s income every year than is raised by the administration’s 2015 corporate tax increases—the increases that drove away General Electric and other major Connecticut corporations. The results, meanwhile, appear ineffectual: even the corporation that received the most of such incentives has recently announced plans to leave the state.”

 

It is often assumed an economic development program based upon tax credits and incentives will help create economic growth. However, policymakers need to realize depending on high tax rates, increased spending, and subsidized economic development is not a sound economic policy. Connecticut, as well as much of the Northeast, is an example:

“Without a doubt, the ideological forces behind anti-growth economic policies have largely had free reign in driving policy in the Northeast, with conclusive and devastating results. Most states, with a few notable exceptions like California and Illinois, have chosen policies in opposition to those in the Northeast—lower taxes, less government, fewer burdensome regulations—and their prudent decisions will continue to pay dividends.”

 

Tax rates matter, and the more you tax something, the less you will get. This is an economic truth. States showing the best economic growth are those following an economic growth policy of lowering tax rates, reducing spending, and eliminating excessive regulations. States, just as with nations, cannot tax and spend themselves into prosperity.

 

 
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