Lawmaker says taxes will drive out the rich

May 27, 2015

Article as it appeared in the Connecticut Post

Departures by small group could have wide impact on finances, senator says
Alexander Soule

Published 6:34 pm, Thursday, January 8, 2015

At a Wednesday forum in Stamford, a local state senator warned that a wealthy taxpayer in his district is on the cusp of leaving Connecticut in response to any further tax increases, with the loss of that individual potentially costing the state as much as $30 million in annual revenue.

State Sen. L. Scott Frantz, R-36, issued the warning at a state budget forum at UConn Stamford hosted by the ‍Business ‍Council of Fairfield County. The panel also included Benjamin Barnes, Gov. Dannel P. Malloy’s budget chief leading the Connecticut Office of Policy and Management, and state Sen. Bob Duff, D-25, whose district includes wealthy enclaves in Darien and the Rowayton section of Norwalk.

The Connecticut General Assembly is considering a proposal by Malloy to commit as much as $100 billion to upgrade Connecticut’s rails, highways and other transportation infrastructure. The proposal would likely require new or higher taxes in one form or another to help cover the upfront costs, with the hope that a resulting boom of economic activity would pay off the investment over the long term by generating new revenue.

“The ‍business community understands that certain kinds of spending are actually investments, and so a thoughtful strategy to improve the performance of our rail, our roads, improve our safety — that’s not in the same category of spending,” said Chris Bruhl, CEO of the ‍Business ‍Council of Fairfield County. “We have to be careful not to (create) tax avoidance and investment avoidance.”

Frantz said wealthier taxpayers could refuse to absorb any further increases to the taxes they pay in their uppermost brackets, noting it is not difficult for some of those taxpayers to re-establish residency in New York or other states. In 2012, financier Edward Lampert relocated his ESL Investments from Greenwich to Miami, with Frantz at the time blaming Connecticut’s taxes as a spur.

In a December 2014 study, the Connecticut Department of Revenue Services determined that the 357 richest taxpayers foot 5.4 percent of the state’s total tax burden — or nearly $950 million in the aggregate. Combined with another 3,650 households earning at least $2 million annually, and the $1.9 billion they ante up to Connecticut is about equal to the taxes paid by some 129,300 families who earn between $102,000 and $135,000.

“Once you jack the tax base up more, you are going to lose more of the tax base,” Frantz told the audience , which included Stamford Mayor David Martin. “I don’t need to tell you that — you live in the heart of it and you hear the same things I hear every day. It’s already happened.”

Frantz suggested history is about to repeat itself, saying a hedge fund financier he did not identify by name is on the cusp of moving to Florida, taking along the $25 million to $30 million in taxes the individual pays Connecticut each year. That amount would be equal to about a third of the sales taxes generated by Greenwich stores in a given year.

“I disagree with the premise that the proposed incremental inc
rease in the highest parts of the income tax bracket is going to not have an effect on people who are making that kind of money,” Frantz said. “I think they’re incredibly sensitive to it, because it’s not the first time they’ve had to pay more since they moved here or got into ‍business many, many years ago.

“I think they also take into account the fact that Connecticut does not allow itemized deductions,” Frantz added. “We are not competitive anymore with New York state and even New York City and Massachusetts and Rhode Island, I think (wealthy taxpayers) are very sensitive to it.”

Bruhl said Connecticut’s estate tax plays a larger threat to encouraging wealthy residents to leave. Frantz said he has sought for seven years to change Connecticut’s estate taxes, calling it “the most unproductive tax on the books” due to people leaving the state when they turn age 55 or older.

“Governor Malloy is not at all unsympathetic to addressing the estate tax,” responded OPM Secretary Barnes. “We don’t want to have a tax policy discouraging the presence of capital in our state.”