Don't Cross that Line!

In the United States, many people live in one state but work in another. In some states, like Colorado, this number is quite small since a small portion of the population lives near the state line. In other states, like Connecticut, this number can be quite substantial.

This has an impact on local tax policy. In Connecticut, various politicians talk about the rich paying their "fair share", which always seems to be more. The problem for Connecticut is that many of the wealthiest residents pay no income taxes on wages ot the state of Connecticut, since they work in New York state, and pay income taxes to New York instead. Raising the top bracket of Connecticut's income tax won't have an impact on these people until the Connecticut top bracket surpasses New York's top bracket, since you don't have to pay income taxes twice if you cross state lines on the way to your job.

Connecticut has about 3.5 million people. About 38% of these are either under 18 or over 65, so are not likely to be in the work force. According to Metro North, the commuter railroad that takes people to New York City and intermediate points, about 80,000 commuters get on the trains every day in Connecticut. A few more Connecticut residents probably board at Port Chester (the first train station in New York, right over the Greenwich border), and there are also some that drive their cars or take a bus over the Hudson line in New York state and take the train into the city from there (indeed, my town, Ridgefield, has the shuttle bus which runs 8 times per day to the Katonah train station in New York).

There are some commuters -- not many -- who take the train to other Connecticut towns, and there are some New Yorkers who commute outwards to Connecticut. But I would estimate that conservatively, there are 50,000 net train commuters from Connecticut into New York.

Some people drive from Fairfield county to Westchester county, but I would imagine that these people cancel each other out. The Massachusetts/Connecticut people probably also cancel each other out. There may be more Rhode Islanders coming in than Connecticut residents heading into Rhode Island, since Connecticut has two large casinos (Foxwoods and Mohegan Sun) located near the Rhode Island border. However, these are mainly low wage jobs, and thus don't generate much in the way of income taxes for the state.

These 50,000 or however many commuters into New York are mainly high wage earners. Monthly tickets from Greenwich to Grand Central station in New York City cost $237, and they get more expensive as you go further out. So the salary has to be worth the cost and approximate hour of commuting time.

New York has a graduated income tax that hits 7.7% after $500,000 (7.375% after $100,000). Connecticut reaches 5% at $10,000 and stays there. So for the top rate, Connecticut would not receive any income taxes from cross-border commuters until it topped the 7.7% level.

I don't have any statistics available, but I would imagine that as a percentage of income earned, Connecticut probably has the highest percentage being earned out of state. New Hampshire has a lot of commuters going into Boston, but since New Hampshire doesn't have income tax, this becomes irrelevant. New Jersey of course is also a commuter heavy state, both in the north (to New York) and south (to Philadelphia), but it's a much bigger state than Connecticut. Maryland has a decent percentage that commute into D.C., but it appears that there is some sort of agreement in place that means those residents pay taxes to Maryland and not DC (however, Maryland commuters to Delaware don't seem to have this agreement.

In any event, when a large portion of your biggest income producers commute out of state, and are thus not subject to your taxes, it's difficult to promise that raising taxes on the rich is going to bring in lots of new revenue.

One Conencticut state senator, Ed Meyer, said he would favor raising the top rate to 18.97%, which would make Connecticut the highest taxed state by far. This would of course pull in some money (18.97% minus 7.7% paid to New York) from the wealthy cross-border commuters, at least until they moved closer to their jobs, in the low tax jurisdiction of Westchester County, New York.