Friday, January 13, 2012

No Tax Increases, No Increase In Progressivism

Governor Dannel Malloy, busying himself with re-inventing Connecticut, has now formed a task force to review and assess the effectiveness of the state’s business tax credits, according to a recent press release.

Executive Order 17 “will create a nine member Governor’s Business Tax Policy Review Taskforce. The taskforce’s mission will be to review the state’s business tax policies to ensure that Connecticut is getting the maximum return on its investments, with an eye toward policies that will make the state even more competitive for future job growth.”

“Over the last year,” Mr. Malloy said, “we’ve made every effort to reinvent our state, so that we could turn around twenty years of job loss and spur our economy. From ‘First Five’ to the bipartisan jobs package, we sent a message across the country and around the world that Connecticut is open for business. This taskforce will make sure that Connecticut is getting a solid return on those investments by closely examining ways to reduce costs, improve efficiency, and ensure that taxpayer dollars are being used to create and retain good, permanent jobs for our workforce. It will also be charged with finding policies that will make our state even more competitive so that we can pull even more jobs into our state.”

In tandem with Mr. Malloy, Comptroller Kevin Lembo let loose his own press release:

“I am delighted that the Governor agrees on the importance of evaluating tax expenditures. Whether through existing law or through the Governor’s new order, I look forward to an open and impartial conversation and analysis of this important portion of our state budget.

“There are more than a half billion state tax expenditures on the books – and we need to confirm whether they’re working. With so many dollars at stake, particularly concerning job-creation initiatives, they must be monitored closely to ensure success.”

Mr. Lembo suggested that the Business Tax Credit and Policy Review Committee, dormant since its 2005, should be raised from the dead “to study and evaluate existing credits against the corporation business tax and to make recommendations on changes or modifications necessary where tax policy …is not providing a measurable benefit sufficient to justify any revenue loss to the state.”

There is no indication in the press releases that the Governor’s Business Tax Policy Review Taskforce will be tasked with measuring the measurable benefit of the governor’s First Five program and its effect upon tax receipts that might better be put to use elsewhere.

Reading between the lines of these mystery laden media releases yields the following possibilities.

1) Net taxes once again will increase, this time by pruning unnecessary tax credits, i.e. those in Mr. Lembo’s view that do not prove “sufficient to justify any revenue loss to the state.” The operative premise of this view is that taxes attributable to tax credits not collected by the state already belong to the state; businesses presently using such forgiven taxes for other purposes – for instance, to pay the salaries of their workers – are simply renting the tax money from a once and no longer generous government.

2) Net tax receipts will not increase because Mr. Malloy, serious about resetting the relationship between business and state, will abandon all tax credits and, at the same time, reduce business taxes proportionally, thus sharing the benefit of lower business costs with every business in the state, as well as every business outside the state drawn to Connecticut by a promise of equal and fair dealing.

The first choice is the path to ruin. All business taxes are passed on to consumers in the form of higher prices. Small businesses, working within a very tight profit margin, cannot afford to increase costs without making economies elsewhere, usually by reducing the price of labor. This is done by firing workers and increasing joblessness.

The second choice will not be the first choice of Connecticut’s ruling class because, in the short term, a reform that does not increase taxes deprives progressive politicians of the walking around money they need to shore up the support necessary for reelection. And in the long run, we’re all dead.

Politics as usual suggests that Mr. Malloy and Mr. Lembo, after laundering the responsibility for their choices through nine member Governor’s Business Tax Policy Review Taskforce will settle upon number 1. No taxes, no progressivism.
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