Tax Reform

Alexion, General Electric, Aetna and Others Are Leaving Connecticut for a Reason

The Connecticut legislature moved to raise taxes by about $1.5 billion dollars[i] through new and higher taxes on cell phones, Uber rides, hospitals, hotels and second properties last month.[ii] These tax increases follow a $2.5 billion dollar tax increase[iii] in 2011 and $1.3 billion dollar tax increase in 2015[iv], ranking it one of the highest tax increase in state history. Both large and small business owners have felt the brunt of the tax increase and have fled to lower tax states like Florida, North Carolina and Massachusetts.

Connecticut’s business environment has deteriorated since the “Great Recession,” particularly when compared to states which have embraced pro-growth policies. In 2016, Connecticut ranked 43rd on the Tax Foundation’s “State Business Tax Climate Index.”[v] While the state has, on average, lowered their corporate income tax rates over the past ten years. Connecticut has trended the opposite direction by raising their individual income tax rate on multiple occasions and increasing and making adjustments to their corporate income tax to collect more revenue in the past decade[vi].

Residents and business owners have taken note of this trend. Between 1993 and 2015, 170 thousand tax filers moved to lower tax states[vii], taking with them about $14 billion dollars of adjusted gross income[viii]. The combined effect of demographic changes and net negative migration has resulted in Connecticut losing total population three years in a row[ix]. While smaller business owners have left largely unnoticed, the larger businesses, particularly those who have received state subsidies, have attracted headlines.

On January 14, 2016, General Electric announced that it would relocate its headquarters to Boston[x]. General Electric explicitly stated that taxes and state policies played role in their decision to leave.

On May 31, 2017, Aetna announced that it would also relocate to New York City[xi]. Again, the business cited state policy and a lack of fiscal order as primary reasons for their decision to leave Connecticut.

The day before the budget debate, September 13, Alexion announced that it would follow General Electric and move to Boston. Alexion estimates that the move will save their business approximate $100 million dollars a year, savings which will be directed toward lifesaving drug research[xii].

Proponents of higher taxes and more restrictive regulation tend not to take these companies at their word. They argue that the relocation of major businesses must be due to the weather, a public relations stunt, some personality quirk of the CEO, or, bizarrely, that moving to Boston is a “smokescreen” aimed at covering up some potential scandal[xiii]. However, these relocations coincide with an exodus of income, capital investment, and population from Connecticut[xiv] toward lower tax state that cannot be explained away so easily. We can’t all be running from the SEC, right?

Residents and their businesses are moving to lower tax, higher growth states because they are aiming to gain the most out of their lives. That often means reducing their cost of living by moving to Florida or the Carolinas. It can also mean moving into urban centers like Boston or New York City now that the tax advantage Connecticut residents long enjoyed over their neighbors has all but deteriorated.

Legislators must enact reforms. On the spending side, there is a 13-step recovery program outlined in the State Budget Reform Toolkit.[xv] The first step is for elected officials to admit that Connecticut has a problem with its current budget system. On the revenue side, a shift away from harmful taxes on income and capital is needed. Broader, flatter and lower property and consumption taxes will spur growth.

Without bold steps towards change, individuals and businesses will pursue opportunities elsewhere.








[viii] Census calculations from RSPS








In Depth: Tax Reform

Mainstream economists, small business owners and taxpayers across the country understand that growth-oriented reforms mean increased opportunity for all. As demonstrated by the annual Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, sound tax and fiscal policies are critical to economic health, allowing businesses and households to flourish. A…

+ Tax Reform In Depth