Comptroller Nancy Wyman has detected some cracks in Connecticut’s principal revenue engine, the state’s income tax.
“The drop in the income tax is directly linked to the drop in job growth we saw in the first four months of the calendar year,” Wyman said.
According to a report in the Journal Inquirer, the 40 percent of the state’s income tax tied to Connecticut’s wealthiest households in the form of capital gains, dividends, investment income, and year-end bonuses has suffered a drastic diminishment.
“Between the 2001 and 2002 fiscal years,” the JI reported “the investment portion of the income tax lost more than $420 million. By 2003, the overall decline topped $550 million.”
It would appear that the rich don’t always get richer as the poor get poorer. Former President John Kennedy got it right when he said that a rising tide lifts all the boats. Prosperity lifts both the rich and the poor on its broad shoulders.
Connecticut’s tide has been receding for a long while, and the question arises “What to do?”
Wyman has suggested that “Rell and the legislature should begin working together now to address the projected $150 million to $175 million deficit in the 2009 budget, rather than engaging in partisan attacks.”
Deficits can be addressed in one of three ways. The deficit can be lowered through spending cuts, tax increases or a combination of both.
In the past, the legislature, dominated by Democrats and enabled by compliant Republican governors, has not favored spending cuts, here defined as permanent reductions in state revenues. The state has had its share of tax rebates, small enough not to alarm revenue consumers such as the state’s powerful teacher unions. Cuts were not likely as the state, flushed in surpluses, rolled surplus after surplus into the swelling general fund. In the space of three governors – two of them, Governors Jodi Rell and John Rowland, Republicans, and the third, Governor Lowell Weicker, the daddy of the state’s income tax, a “maverick” who bolted the Republican Party to run as an independent governor -- Connecticut’s budget has nearly tripled, if one adds the increase in state bonding into the mix.
And so here we stand, the red tide licking at our ankles. The prodigal’s son left his father’s home, blew his patrimony on baubles, and now he has returned home in rags.
Actually, it’s worse than this if one applies the parable to Connecticut, because the head of the household also has been something of a spendthrift. He too is wearing rags; the homestead has been mortgaged to other lenders; and the old man’s usual source of income, the taxes he’s levied on his workers has diminished, in proportion as they have left him to search for work in neighboring territories where the grass is greener and the mangers of households are more prudent.
What to do?
We’ve run this course before. Indeed, these were the circumstances that gave rise to the state’s income tax.
The Democrat plan, last outlined most boldly by New Haven Mayor John DeStefano in Connecticut’s recent gubernatorial campaign, is to force the rich to cough up their “fair share” of taxes. But, as we have seen, the general fund has been destabilized precisely by the tax instrument that Democrats hope to increase.
Will this datum figure in the non-partisan deliberations on the coming deficit that Wyman is urging upon legislators and Rell?
If it does figure in the deliberations, the non-partisan politicians will discover that there is but one way to stem the coming red tide.