Where Has All the Money Gone? The 25th Anniversary of Connecticut’s Income Tax

In 1991, state lawmakers asked the residents of Connecticut to support a compromise: in return for an income tax, lawmakers promised to abide by a constitutional spending cap which would, they said, ensure fiscal responsibility. But legislators failed to live up to their end of the bargain. Not only has spending risen far faster than predicted, leading to deficits followed by additional tax increases, but the spending cap was neither fully implemented – nor respected.

In the years immediately following the 1991 passage of the income tax, Connecticut lawmakers ramped up spending, favoring short-term fixes over long- term reforms. This approach has led Connecticut to a fiscal crisis – with the state deeply indebted both to Wall Street and to retired public employees. Meanwhile, the fiscal restraint supposedly guaranteed by the spending cap never materialized.

In order to prosper again, Connecticut needs a more competitive tax structure. It begins with fiscal responsibility, enforced by the full implementation of the constitutional spending cap. Once there are meaningful fiscal restraints in place, the focus can shift to tax reform. Connecticut should once again offer tax rates that are competitive in its region. A flatter, lower income tax would encourage more people once again to live (and pay taxes) here. The alternative—hiking tax rates further, leading to additional out-migration of people and businesses—is unsustainable at best, and at worst would lead Connecticut into fiscal insolvency.

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