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.
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), and the state population has fallen by 13,000, also the largest decline in the nation.