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Date Posted: Thursday, November 06, 11:50:51am
Author: Dave Zitzkat
Subject: Eliminate the State Income Tax - The time is right.

FOR IMMEDIATE RELEASE, (Hartford, CT) - The Connecticut state-based think tank Yankee Institute for Public Policy is releasing a paper “Save Connecticut’s Financial Future: Eliminate the Income Tax.” Co-authored by J. Scott Moody and Wendy P. Warcholik, Ph.D., tax economists and contributing writers for Yankee, the paper shows how eliminating the individual income tax over time will simultaneously boost long-term economic growth and reduce the economic burden of the debt—a win-win situation www.yankeeinstitute.org .

This past Tuesday, Massachusetts voters rejected a referendum to replace its state's income tax outright, 69% to 31%.

Will Yankee’s plan which offers a gradual elimination of the income tax prove to be a more hopeful solution--one that may get better support from lawmakers and taxpayers?

Eliminating Massachusetts’ income tax without spending reform is putting the cart before the horse. In FY 2007, Massachusetts’ income tax brought in $11.4 billion in revenue which accounted for 55 percent of all state tax revenue. This staggering sum simply can not be replaced overnight. The most likely outcome, had Question 1 passed, would have been to increase other existing taxes or enact new taxes to replace the lost income tax revenue.

Moody says, “Instead of the Massachusetts approach, a better option is to enact spending reform, such as our Taxpayer Bill of Rights (TABOR), that would put real speed limits on the growth in government. Inevitably, over time, slower spending will lead to budget surpluses that can be used to reduce taxes. TABOR is also very flexible in that during hard times, such as the current banking crisis, the state government can tap the built-in rainy-day fund or choose to spend above the growth limit--they simply have to ask for permission from the voters to do so.”

This analysis offers good news and bad news to the taxpayers of Connecticut. The good news is that spending reform, a TABOR can eliminate the income tax entirely by systematically decreasing the top marginal tax rate (currently 5 percent) based on the yearly budget surplus. The lower top marginal tax rate maximizes the economic benefits of lower taxes, ensuring that ALL taxpayers enjoy lower taxes! The bad news is that the current income tax has grown out-of-control in the last 2 decades, and it will take at least that long to fix.

How has the income tax worked out for Connecticut since its inception in 1991? Two hundred forty thousand native-born citizens between 1990 and 2002 have left the state—including a disproportionate exodus of 18-to-34-year-olds. Retirees are making their residency in Florida sooner, job growth has been near zero, personal-income growth has slowed significantly, and median household income has fallen.

The answer is not clear cut because all states without an income tax also have lower-than-average tax burdens. Not having an income tax constrains the overall tax burden—which is a good thing economically. It becomes the proverbial “chicken and egg” problem: which came first, lower tax burdens or no income tax?

Connecticut State Senator Sam Caligiuri says, “Connecticut's income tax has done nothing more than make it easier than ever for the legislature to spend more than the state can afford. Its imposition has enabled a vicious cycle of excessive spending and tax hikes that stifles economic growth.”

How successful has TABOR been in other states? TABOR is perhaps too young of a movement to be solely responsible for eliminating a tax—especially one as hefty as the income tax. However, it can be argued that Colorado's TABOR is the reason why their income tax is so low--and past surpluses from TABOR have been used to lower the rate to its current level.

Barry W. Poulson, Ph.D., Professor of Economics at the University of Colorado-Boulder said, “…by capping the growth in revenue and spending the state could lower income taxes and eliminate the tax altogether over the next several decades. This study is an important contribution to the debate over fiscal policy in Connecticut.”

To download a FREE copy of Save CT's Financial Future: Eliminate the Income Tax, www.yankeeinstitute.org .

To schedule interviews for print, radio or television or to learn more, contact Mary Crean at mary@yankeeinstitute.org or at (860) 881-5589.



www.yankeeinstitute.org

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