Source: CNBC. Make no mistake: Taxes chased GE out of Connecticut, says Larry Kudlow. What the state needs now is a dose of free-market capitalism. ·CNBC
Larry Kudlow
Updated
General Electric (NYSE: GE)'s decision to leave Fairfield, Conn., for Boston is another sad marker in the downhill slide brought about by Connecticut's high-tax, high-regulation, anti-business policies of the last 25 years.
Democratic Governor Dannel Malloy accelerated the state's economic freefall with another huge tax hike passed last summer. Despite his 2014 re-election promise of no new taxes, Malloy signed a $2 billion tax hike that falls heavily on businesses and individuals. This came only a few years after his near $1.5 billion tax hike.
Does anyone doubt that massive tax hikes on successful earners and corporations drive those same folks out of state? That's the new Connecticut story. A 2014 Gallup poll showed that nearly half (49 percent) of Connecticut residents would leave if they could. That was second only to Illinois, with 50 percent.
Meanwhile, Connecticut's economy and rate of job creation have only recently recovered to pre-recession levels. So it took Connecticut eight years to get back to even. Not new growth or new job-creation — just even.
Hartford politicians don't understand that you can't have higher paying jobs without successful businesses to create them. Punitive taxes on business, however, cause job shrinkage. Plus, you can't start a business without investment. Here, too, punitive taxation stops investment cold and ends the dream of more higher-paying jobs.
Who suffers from anti-business tax and regulatory policies? Middle-class families.
By the way, has anyone heard U.S. Senator Richard Blumenthal, a career Democratic politician of 35 years, ever utter one peep of protest against Connecticut's ruinous decisions to punish business? Just asking.
But get this: From the Connecticut governor's office on down, Democratic officials argue that the GE move to Boston had nothing to do with taxes. Instead they say it was an effort to merge with Boston's high-tech culture.
There's a grain of truth to this, although Connecticut does boast Yale, Wesleyan, Trinity, and Sacred Heart University's business school (named after great former GE CEO Jack Welch). But this taxes-don't-matter argument is malarkey.
When you tax something more, you get less of it. Art Laffer's famous curve (where tax revenue grows as taxes grow but after a certain point, tax revenue growth starts to decline in relation to rising taxes) has kicked in with a vengeance in Connecticut, where higher tax rates are producing lower-than-expected tax revenues and killing jobs and growth.
It's no coincidence that well-to-do residents are moving to zero-income-tax Florida, and major corporations like GE are seeking greener pastures. It's also no surprise that GE CEO Jeff Immelt began talking publically about a corporate relocation right after Connecticut passed its gigantic tax hike last summer.
That Democratic tax hike included a slew of corporate-income-tax increases, coming to roughly $500 million. At 9 percent, Connecticut's corporate tax is now fifth-highest in the country. And switching the state to combined-income reporting (including out-of-state GE income) was a killer. Additionally, sales taxes on everyone were raised while property tax credits were diminished.
Connecticut has the second-highest property tax in the nation, ranking 49th out of 50. The Tax Foundation ranks Connecticut 42nd out of 50 in terms of tax climate (Massachusetts ranks 24th), and second highest in terms of state and local income-tax collections per person.
Massachusetts? It dropped its corporate tax to 8 percent from 9.5 percent and has a flat income tax of 5.15 percent. Connecticut, on the other hand, jacked its corporate tax to 9 percent from 7.5 percent and its top income-tax rate to 6.99 percent from 5 percent.
These are sizeable differences in favor of Massachusetts. Taxes don't matter?
And the dirty little secret is that the pension and health-care benefits of the government unions — which dominate Democratic state politics — are roughly 50 percent unfunded. This spells many future tax hikes. GE's Immelt knows it.
Not all the blame goes to Democrats. Connecticut's first personal income tax was put in place by Republican governor Lowell Weicker. And Republican governors ruled for 16 years prior to Malloy's victory in 2010.
And in last summer's budget battle, I don't recall any Republican initiatives to slash business taxes.
One of the key points in the Connecticut disaster is that, while big corporations can get $100 million in tax credits, the woman running a small struggling business in Naugatuck gets nothing. But she's paying for GE's tax credit.
Connecticut's high-tax policies do not soak the rich. The rich leave. Meanwhile, exorbitant tax and regulatory burdens slam the middle-class wage earners who have been losing take-home pay for years.
But you know what? This can be fixed. There are positive policy options. Connecticut needs a large dose of free-market capitalism. Roll back the overtaxing, overregulating, and overspending.
Commentary by Larry Kudlow, a senior contributor at CNBC and economics editor of the National Review. Follow him on Twitter @Larry_Kudlow.
