While many feel the wealthy should be paying more in taxes, the efforts to enforce this strategy does have some consequences for state budgets. Many of the country’s wealthiest individuals hold the majority of their wealth in stocks. That means when the stock market goes down, so do the tax payments of the wealthy.
In fact, several states are currently feeling a pinch in their budgets thanks to the less than favorable conditions of the market. For example, Connecticut governor Dannel Malloy announced budget cuts late last year blaming the stock market’s lackluster performance. Budget analysts expect at least a $200 million deficit, and the governor has already announced several cutbacks.
Meanwhile, in California, the state is also expecting less revenue from capital gains this year and in New York lawmakers have been told to lower their expectations for the state’s upcoming fiscal year. While not all states are affected by the stock market, those that count many of the wealthiest individuals as residents can be hurt dramatically when the stock market takes a downturn.
Another sign that higher taxes could be hurting states’ budgets is happening in Connecticut where some lawmakers believe that many of the state’s wealthiest individuals are moving to other states in order to avoid Connecticut’s high tax rates on the wealthy. With so many high net earners in the state being affected by new efforts to raise taxes on the wealthy, the state’s budget is taking an even greater hit.