Thursday, December 23, 2010

On Not Letting A Crisis Go To Waste

Rham Emanuel, President Barack Obama’s campaign guru now running for mayor of Chicago, famously cautioned, “Never let a crisis go to waste.” In the year following Mr. Obama’s accession to the presidency, the Obama administration was able to put into practice Mr. Emanuel’s admonition because Democrats had acquired enough seats in congress to snuff out Republican opposition. It is a considerable understatement to say that the Obama administration then proceeded to spend money like a drunken sailor, and it may be an insult to drunken sailors who, after all, stop spending money when they hit the floor.

Here in Connecticut, owing to accommodating governors and a Democratic dominated legislature, the Obama paradigm has for at least two decades produced red ink by the barrel. On the Republican and Democratic side, people are beginning to think our crisis should not be permitted to go to waste. But solutions differ widely.

The gubernatorial office in Connecticut has now fallen to Democrats who would like to take advantage of their power position to make the Lowell Weicker income tax more progressive. A progressive income tax is one in which a selfish and grasping minority, rich robber barons, pays the brunt of taxes, while the majority, the poor and the working classes, consume services paid with taxes “contributed” by the minority.

There is a steep downside to progressive taxation: If the bulk of a state’s tax revenue is drawn from a wealthy minority, the continued welfare of the majority of tax consumers will depend upon the fluctuating fortunes of the tax suppliers, and when the wealthy are pinched in recessions, the majority of people will feel the pinch though deepening budget deficits. Part of Connecticut’s two year budget hole, about $6 to $8 billion, depending upon whose arithmetic is used, may be put down to an income tax collected from a narrow band of wealthy folk whose fortunes have been diminished by a recession that has severely reduced business activity. Revenue collections diminish when overtaxed businesses recoup costs by moving to states in which taxes are less punishing. A shrinking number of tax payers necessarily reduces tax collections.

Revenue streams drawn from a larger number of people tend to be more stable. This is one of the reasons some economists favor a broad based, flat tax that accommodates the poor through what is called a negative income tax, a feature in the tax code that makes it possible for states to cut back on welfare payments. The floor of the negative income tax is set above the state poverty level, so that people whose income falls below the floor receive a portion of tax payments that will lift them to safety, allowing the state to reduce the welfare bureaucracy that disperses taxes to the needy.

A stable broad based, negative income tax also would allow Connecticut to toss overboard the hundreds of niggling little taxes featured in a stunning report issued months ago by the Yankee Institute. The report, a tightly packed line item listing of taxes and fees is about 30 times the length of this column, and contains such exotic revenue enhancers as fees associated with acquiring a tag to kill a pheasant in the state.

Without question, the most deeply hidden fee collected by the legislature from taxpayers who have been bewitched by political chicanery is the so called Competitive Transmission Assessment (CTA) that has been appearing for some time on Electric Utility bills. In June 2010, the CT General Assembly voted to sell $1.8 billion in future revenue for a $1.3 billion lump sum that was used to help balance the state’s 2010-11 budget. The fee was charged as a surety for bonds sold to cover the cost of what legislators have been pleased to call the “deregulation” of the state’s energy industry.

The surest way to deregulate Connecticut’s costly energy industry is to cut back on regulations. Instead of reducing and streamlining burdensome regulations, the legislature assigned a fee on electric bills to securitize bonds issued to pay for the transition from a regulated to a deregulated market. The fee, approximately $15 per month for residential energy users, was to terminate for one Connecticut energy distributor in 2005 and another in 2011.

But when the state found itself after years of reckless spending facing a budget deficit of $6 to $8 billion, depending upon whose arithmetic one chooses to apply, it decided to create the Economic Transition Charge (ETC), an additional new fee of about $3 per month that will begin appearing on the bills of Connecticut Light and Power customers on Jan. 1, 2011 as the older CTA fees expire. Later in July, that new fee is due to be replaced by an as yet indeterminate Economic Recovery Bond (ERB) charge. Some consider the fees used to pay off the 10 year bonds as disguised taxes because the bonding and the supporting fees will be used to reduce the state’s deficit.

Budget chicanery is never transparent, and it would be distressing to suppose that governor-elect Dan Malloy, who has promised a transparent and forthright administration, will wink at such Orwellian deception. It is a hopeful sign that at least one legislator, senator-elect Joe Markley, saw through the attempt to use electric fees as tax replacements and brought suit against the state’s regulatory apparatus, the Public Utilities Control Commission. Like an ant swallowed by a python, Mr. Markley’s suit is expected to make its way quickly through Connecticut’s clogged court system.

Why? Because the state is broke and Mr. Markley’s suit is holding up the flow into a bottomless black hole of taxes disguised as fees.
Post a Comment