Connecticut to billionaires: Please don’t leave us
Hartford, Conn. — If you’re a billionaire living in Connecticut, chances are the tax department is keeping an eye on you.
In a state home to some of the richest Americans, tax officials go to some lengths to keep them — or, more accurately, keep the billions of dollars in revenue their income taxes generate.
Connecticut tax officials track quarterly estimated payments of 100 high net-worth taxpayers and can tell when payments are down. Of that number, about a half-dozen taxpayers have an effect on revenue that’s noticed in the legislature and Department of Revenue Services.
“There are probably a handful of people, five to seven people, who if they just picked up and went, you would see that in the revenue stream,” said Kevin Sullivan, the state’s commissioner of the Department of Revenue Services.
With one exception, he said, state officials don’t actually approach the super-rich. He said: “There isn’t friendly visiting or anything like that, how are you feeling? Doing all right? Doing OK?”
Two years ago, tax officials were alarmed that a super-rich hedge fund owner might leave and reduce the state’s income tax revenue. They met with the unidentified taxpayer to stay. The effort was partly successful, with the taxpayer leaving Connecticut but agreeing to keep the hedge fund here.
“It would be nice to have both, but at least we didn’t lose both,” said Kevin Sullivan, the state’s revenue commissioner.
Tax officials in a few states said they do not track individual tax payments, though state budget officials typically follow total quarterly tax payments by the rich to make sure revenue projections hold up.
And some experts don’t believe there’s any need to worry about the super-rich moving to avoid high taxes. “The claims are almost always anecdotal,” said Matt Gardner, executive director of the institute on Taxation and Economic Policy.
Connecticut tax officials won’t say who the super-rich are, citing privacy, but it’s not hard to guess.
Many movers and shakers in and around New York City, the capital of the banking and hedge-fund world, work in or populate the verdant suburbs next door in Connecticut. They include names like hedge fund owner Steven Cohen; Thomas Peterffy, of Interactive Brokers; Ray Dalio, of Bridgewater Associates; and Paul Tudor Jones, of Tudor Investment Corp. Combined, their net worth is more than $40 billion, according to Forbes.
If they or other big-moneyed individuals or their businesses decide to leave, the danger is real.
In April 2014, super-rich taxpayers in Connecticut and elsewhere shielded their income through charitable donations or other means to avoid a tax hit following the expiration of federal tax cuts.
The result: Connecticut income tax revenue plunged by nearly $281 million, more than 14 percent, compared with the same month a year before. In the 2014 budget year, state income tax revenue was $8.7 billion, more than half the $16.4 billion in total revenue from taxes and fees.
While tax officials in several states say they track revenue from rich people’s taxes, none said they have approached super-wealthy taxpayers as Connecticut has, intending to persuade them to stay put.
States may call on them if they see a marked increase or decrease in payments, said Ronald Alt, senior research associate at the Federation of Tax Administrators. But he has never heard of state officials lobbying a taxpayer to stay put.
Arkansas, home to Wal-Mart’s Walton family, the owners of Tyson Foods and other super-wealthy taxpayers, does not contact them to alter their decisions, said John Theis, the state’s assistant revenue commissioner. But the agency reviews what’s changing for the wealthiest employers and individuals as part of its revenue forecast.
The super-rich tend to donate to charities when tax laws are in flux. Andrew Hastings, chief development officer at the National Philanthropic Trust, noted the phenomenon at the end of 2012 with the so-called fiscal cliff, the combination of expiring tax cuts and across-the-board government spending reductions.
“It was a windfall for many charities,” he said.
Three of the half-dozen or so super-rich taxpayers in Connecticut use the services of the Greenwich accounting firm Marcum LLP, and each has a yearly income of more than $1 billion. Partner John J. Mezzanotte also said he has seen a big step up in charitable giving.
The migration of the rich affects other taxes, such as the sales tax if wealthy car buyers “bought their Bentley in Florida instead of Greenwich,” he said.
Sen. L. Scott Frantz, the ranking Republican on the legislature’s Finance, Revenue and Bonding Committee, said the disproportionate impact on state revenue by one group of taxpayers — in this case, the super-rich — is “pretty frightening when you think of it.”
Even Connecticut’s revenue commissioner acknowledges the state can’t put too many eggs in its rich residents’ baskets.
The more the government relies on the super-wealthy, the more volatile that revenue is, said Sullivan, a former Democratic lawmaker. And raising taxes on the wealthy to attack income inequality has its limits, he said.
Tax policy, he said, should not make the state dependent on the very rich.
“You don’t want a system that doesn’t ask them to do their fair share,” he said, “but you don’t want a system that makes you so reliant on their fair share that if they all picked up and left tomorrow or died tomorrow you’d be screwed, as they say in the tax business.”