Connecticut Hedge Funds Tax
Connecticut Fails to Collect from Hedge Fund CommunityState governments across the country are struggling to close sizable holes in their budgets and many states have looked to raise taxes in addition to cutting spending. When Connecticut Governor Dannel Malloy came into office in 2010, he implemented a $2.6 billion tax hike on those living in the wealthiest state. Much of the income tax haul was expected to come from the local hedge fund community but the income of high-income individuals is more volatile than the governor might have expected and the state faces a $200 million budget gap.
Connecticut Governor Dannel Malloy is learning you can’t always count on the rich.
The Democrat last month deferred debt payments, trimmed programs and diverted funds as tax revenue came up short and opened a $200 million budget hole. The gap emerged about a year after Malloy, 56, who was elected in 2010, signed a $2.6 billion tax increase, the biggest in state (STOCT1) history.
Connecticut, the wealthiest U.S. state, joins California and New Jersey in facing a deficit as income-tax revenue is the most volatile in at least 30 years, according to the Federal Reserve Bank of Chicago. Connecticut counts on the levy for almost half its revenue, with the biggest chunk coming from the hedge fund capital of Greenwich. Connecticut debt has posted the weakest returns this year among U.S. states, Barclays data show.
The shortfall “is just the consequence of loading up on high-income individuals,” said Philip Fischer, who runs eBooleant Consulting LLC in New York and formerly headed municipal-bond research at Bank of America Merrill Lynch. “It is destabilizing. They have very volatile incomes. The states have that reflected in their budgets.”
Increasing volatility in tax collections is complicating local governments’ emergence from the worst fiscal crisis since the Great Depression. States projected or dealt with a combined $54 billion of deficits in the fiscal year starting July 1, according to a report from the Center on Budget and Policy Priorities, a nonprofit group in Washington focusing on issues affecting lower-income Americans. Source