Connecticut: Does the Composition of Taxes Really Matter?

Finally, recent fiscal events in the state of Connecticut have provided a real-world test of the theory that personal income taxes are more harmful to economic growth than sales taxes. In 1991, state leaders enacted a tax reform package that was the exact opposite of what economic theory and a growing body of empirical research tells us is required to avoid economic decline. Connecticut imposed a new state personal income tax and made a substantial reduction in the state sales tax.[17]

By the tax growth measure in Moore's (1993) study, that tax package helped to rank Connecticut as both the top tax-increasing state and the top income tax-increasing state in the nation. Connecticut's dismal economic performance since the 1991 tax change should come as no surprise. The state has led the nation in job loss with a decline of 5.3 percent (84,000 lost jobs),[18] and the state population has fallen by 13,000, also the largest decline in the nation.[19]