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June 2, 2016

(Attached is today’s must-read lead editorial in the Wall Street Journal. Please share it!)

Connecticut’s Hedge-Fund Bribe

First soak the rich. Then subsidize the richest. Meet the progressive state business model.

Connecticut lost General Electric ’s headquarters to Massachusetts earlier this year, so Governor Dannel Malloy is now trying Illinois’s business model: Raise taxes, and then when businesses threaten to leave, write a check to other businesses so they’ll stay.

Behold his $22 million taxpayer gift to Ray Dalio ’s Bridgewater hedge fund.

Last week the Governor presented Bridgewater with $5 million in grants and $17 million in low-interest, forgivable loans to renovate its headquarters in Westport along the state’s Gold Coast.

Mr. Malloy said that other states including New York were trying to lure Bridgewater, and Connecticut couldn’t afford to lose the $150 billion fund or its 1,400 high-income employees.

We’ve got nothing against Mr. Dalio, but he could probably dig up $22 million from petty cash.

The Governor’s office says Nutmeg State tax revenues could shrink by $4.9 billion over the next decade if all of Bridgewater’s employees departed. After Appaloosa Management’s David Tepper escaped to Florida from New Jersey last year, Trenton’s budget gnomes sounded the public alarm.

“We see what happens in places like New Jersey when some of the wealthiest people move out of the state,” Mr. Malloy warned.

This is the same Governor who has long echoed the progressive left’s claim that tax rates don’t matter.

Maybe he was knocked off his horse by a vision on the road to Hartford.

Like other states with progressive tax codes, Connecticut is dependent on high earners.

As recently as 1990, the state had no income tax and had long been a refuge for companies and employees fleeing high-tax New York.

But as usual after an income tax is introduced, the political class keeps raising the rate.

Mr. Malloy’s Republican predecessor Jodi Rell raised the top marginal tax rate to 6.5% from 5% on individuals earning more than $500,000, and Mr. Malloy raised it again to 6.99%. Hilariously, Ms. Rell said last month that she’s also moving her residence to Florida because of the “downward spiral” in Connecticut that she helped to propel.

Raising taxes has backfired on the state economy and budget.

Senate President Martin Looney moaned that last year’s income tax hike has amplified revenue volatility and produced “diminishing returns” as tax receipts have trailed budget forecasts.

Higher taxes have also depressed business and income growth.

Fitch Ratings and Standard & Poor’s downgraded Connecticut debt last month because of structural deficits and slow income growth, which Mr. Malloy calls “our new economic reality.”

Fitch noted that employment growth between 2012 and 2015 was half that of the U.S. average. Median home prices have declined during the past two years.

Connecticut has lost 105,000 residents to other states over the last five years while experiencing zero real economic growth.

Last year it was one of seven states including Maine, Mississippi, Illinois, Vermont, New Mexico and West Virginia with population declines.

Democrats in Hartford this spring attempted to close a $960 million deficit—equal to about 10% of the state general fund—by cutting 2,500 state government positions and creating supposed efficiencies.

One result: Six legislative commissions studying the struggles of blacks, Latinos, Puerto Ricans, Asian-Pacific Americans, women, children and seniors were consolidated into two 63-member study groups.

Yet a $1.3 billion gap will blow open in 2018 because the legislature’s budget patches don’t resolve imbalances driven mainly by worker pay and pensions, which this year cost about $1.5 billion.

Pensions are less than 50% funded, third worst after Illinois and Kentucky.

So here is the new-old progressive governing model: Raise taxes relentlessly in the name of soaking the 1% to pay off government unions.

When that drives people out of the state, subsidize the 0.1% to salvage at least some jobs and revenue. Ray Dalio gets at least some of his money back.

The middle class gets you know what.