OP-ED | State’s ‘Permanent Fiscal Crisis’ Unsustainable
In a late-spring ritual that has become all too familiar, lawmakers in Hartford scramble under deadline to craft a presentable budget to satisfy constituencies that want the state to spend more money, while not imposing sticker shock on those who have to pay for it.
This time taxpayers lost out, thanks to a midnight deal struck last Sunday between General Assembly Democrats and Gov. Dannel P. Malloy that calls for a variety of new taxes — about $2 billion worth — to fund a budget of more than $40 billion over the next two years.
With some revisions and after exhaustive debate, the package was passed narrowly, without Republican input, on Wednesday by both houses near the close of the session.
Among the revenue-raising schemes embraced by lawmakers was an increase in income taxes on the wealthy, sharp increases for businesses, hospitals, and cigarette smokers, the doubling and then tripling of a tax on computer and data processing, and allowing the lottery commission to offer Keno, a highly addictive form of electronic gambling.
Lawmakers countered that the deal also included property tax relief and that harsher forms of taxation were considered but rejected. Funny how lawmakers were quick to point out how much worse things could have been. Is it supposed to make us feel better that they could have taxed everything in sight, but instead decided to tax only that which was within reach? It’s sort of like your mother saying she could have given you castor oil but opted instead for force-feeding you a box of gnarled prunes.
The deal struck over the weekend came on heels of the publication Saturday of a scathing editorial in the Wall Street Journal comparing Connecticut’s fiscal misfortune to that of Illinois.
The editorial enumerated the Nutmeg State’s many woes: one of only six states to lose population in fiscal year 2014; a poll during that time indicating more than half the state’s residents would leave if they could; an anemic economic growth rate of less than one percent in 2013; and a tie with wretched Rhode Island for the worst job creation record since 2008. Finally, the Journal’s conservative editorial board also excoriated Malloy for breaking his promise not to raise taxes again during his re-election campaign last year.
NBC subsequently sent a crew to Hartford to interview legislative leaders. Morning Joe host Joe Scarborough, who lives in New Canaan, blasted state Democrats for the tax increases, and wondered aloud how any state, rather than offering tax incentives, would actually enact a tax on corporations on their out-of-state earnings, as the so-called “unitary reporting” tax would do.
Unitary reporting is a complicated part of the tax legislation, likely too complicated for a soundbyte, but as I understand it that is not how the legislation would work. It’s more of a disclosure requirement. Companies would have to disclose finances from other states so that Connecticut can verify how much of their income is truly from Connecticut for taxation purposes.
Regardless of how Scarborough described it, unitary reporting is typically going to mean a heavier tax burden for those companies and thus will make Connecticut a less friendly home for corporate HQs. As such, the business community hates this part of the legislation.
But Republicans in the Nutmeg State gleefully seized on the WSJ editorial as yet more evidence that Connecticut is an economic basket case, which it basically is. Anytime you’re living in a place that matches up with Illinois or Rhode Island — two of the most mismanaged states in recent history — you know it’s time to re-evaluate whether you want to continue to live there. Maybe that’s why a recent Gallup poll found that 49 percent of Connecticut residents would leave the state if they could. Only one state had a higher percentage than us: you guessed it — Illinois at 50.
The tax increases caught the business community by such surprise that three of the state’s largest private employers took the extraordinary step of putting out statements decrying the increases and hinting they might pull up stakes and move.
Like so many other governments on the national, state, and local levels, Connecticut has yet to address the fiscal conundrum that vexes it. Wages in the private sector — which funds the government — are largely stagnant. Moreover, so is economic growth in Connecticut. In 2013, the last year for which such data are available, the state’s economy grew by an anemic 0.9 percent.
Meanwhile, the cost of running the government continues its inexorable march upward. It doesn’t take an economist like Fred Carstensen to see that our system is completely unsustainable or, as Malloy budget chief Ben Barnes put it, in “a state of permananent fiscal crisis.”
Did the Malloy administration ask state employees to consider reopening their contracts, as it did during our last crisis four years ago when the unions made minor concessions? Why do I ask that? Because, as both Willie Sutton and the quotable Barnes have said, “That’s where the money is.” As far as I can tell, the subject was never even broached this year — at least not publicly.
Until we address the systemic problems that bedevil our state, we will have to continue to enact record or near-record tax increases every few years. Then when economic activity slows as a result, we will have to raise them even higher, even as wages remain stuck and companies look elsewhere for hospitality.
At that point, my friends, the economic death spiral accelerates.
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