Monday, June 17, 2013

More Taxes On The Way, Connecticut’s Receding Tide


Now that Republicans have been cut out of the budget loop by Governor Dannel Malloy and progressive leaders in the General Assembly, future budgets will be assembled by Mr. Malloy, tax hungry progressives in the state legislature, SEBAC, a coalition of union leaders authorized to negotiate contracts with the state, and economists at the tax gobbling University of Connecticut (UConn).

According to a story that ran in CTNewsJunkie, “Economists at the University of Connecticut recommended Thursday looking at instituting a statewide property tax to close more than $1 billion funding gap in the state’s education cost sharing formula.”

In the UConn report, contributing economist Stan McMillen notes that Connecticut has underfunded its statutorily required share of educational funding to municipalities for the last 5 years by about $1.09 billion. The UConn report weighs a few gap filling options, including a sales tax increase to 8.3 percent and a boost in the income tax of 13.8 percent, although the report seems to favor the statewide property tax as an “outside the box” solution to the problem.      

When asked whether he anticipated any negative consequences from enacting a new tax, Mr. McMillen said, according to the CTNewJunkie report, “it was a ‘pay me now or pay me later’ issue.

“’We’re underfunding by $1.09 billion. That’s going to have downstream consequences,’ he said.”

Long ago and far away, during the gubernatorial administration of maverick Governor Lowell Weicker, it was generally assumed by the state’s administrative arm – the governor, the Democratic majority in the state legislature, municipal politicians and the state’s media – that, confronted with a budget deficit, the state of Connecticut should increase taxes. Connecticut, it was often said at the time, was suffering from a revenue and not a spending problem. This theory, happily embraced by all whose futures depended on rapidly increasing taxation, could be entertained only in a state in which personal income was consistently rising.

Somewhere along the line, the theory was found wanting. In a recession, the receding tide lowers all the boats – the obverse of President John Kennedy’s sage observation that “a rising tide lifts all the boats.”

In a 1963 speech to the Economic Club of New York, Mr. Kennedy explained in great detail how he proposed to raise the tide and consequently lift all the boats. Mr. Kennedy was intent on increasing revenue by – and here it is necessary for progressives to hang onto their red Phrygian caps – decreasing business taxes. Once the rising tide had flushed money into federal coffers, the federal government would have the resources necessary to inaugurate Great Society programs.


“There are a number of ways by which the federal government can meet its responsibilities to aid economic growth… the most direct and significant kind of federal action aiding economic growth is to make possible an increase in private consumption and investment demand -- to cut the fetters which hold back private spending. In the past, this could be done in part by the increased use of credit and monetary tools, but our balance of payments today places limits on our use of those tools for expansion. It could also be done by increasing federal expenditures more rapidly than necessary, but such a course would soon demoralize both the government and our economy. If government is to retain the confidence of the people, it must not spend more than can be justified on grounds of national need or spent with maximum efficiency.

 “The final and best means of strengthening demands among consumers and business is to reduce the burden on private income and the deterrents to private initiative which are imposed by our present tax system – and this administration pledged itself last summer to an across-the-board, top-to-bottom cut in personal and corporate income taxes to be enacted and become effective in 1963…”



Mr. Kennedy was as good as his word. His program was enacted and a cataract of funds poured into the national treasury. Following Mr. Kennedy’s tax cuts, enacted after the president’s death in the Johnson administration, unemployment was reduced from 5.2% in 1964 to 4.5% in 1965 and further fell to 3.8% in 1966.  Though it had been estimated that the cuts would result in a loss of revenue, tax revenue increased in 1964 and 1965. The tide had lifted all the boats. After Mr. Kennedy’s assassination, his successor, President Lyndon Johnson, diverted some of the swelling revenues to finance his Great Society programs.

Would it not be a useful idea for someone in UConn’s economics department to record Mr. Kennedy’s address to the Economic Club of New York and run it on a continuous loop through the ear buds of the professoriate at UConn?

In the meantime, the idiot notion that Connecticut is suffering from revenue rather than a spending problem has been exploded even within the editorial pages of the state’s left of center media -- following the largest tax increase in the state’s history, which followed 22 years after the second largest tax increase in state history. That silly idea ought to be permanently buried in the fever swamps of progressivism.

2 comments:

Libertarian Advocate said...

Seems to me that your last sentence contains both the nut of the problem and its solution. Drain out the progressives, no more fever swamp.

peter brush said...

Our Nutmeg Left will not soon regain JFK sanity, but it appears it is at least waking up to the damage being done by stupid State spending. But, where were the New Haven Register policy thinkers when the Nutmeg Legislature was in session? Still, better late than never. Some of our Democratic voters may have more sense than the folks representing them in Hartford. If they can't bring themselves to vote Republican, is it possible that they could primary their Dems from the fiscal right?
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But most of all, Malloy can’t skate through to next November on the hope that a state budget pieced together with accounting gimmicks and the introduction of Keno gambling will balance itself.

Unless the governor takes real action on structural cuts in spending and the size of state government, Tom Foley can argue that Malloy has done nothing to fix the state’s budget problem other than increase the tax burden on a wide range of Connecticut families and set them up for more by gimmicks that kick the can down the road.

We need leadership from Malloy on Connecticut’s tax and spending problem.
http://nhregister.com/articles/2013/06/19/opinion/doc51c2290891178675161070.txt?viewmode=fullstory
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The state website boasts that the Governor is cutting spending (next budget is up 5.6%); that the budget is balanced (OPM shows budget deficits as far as the eye can see), and GAAP-certified (only if GAAP stands for God Awful Political Pandering).
http://www.ctmirror.org/op-ed/2013/05/30/ned-lamont-budget-contains-even-more-promises-and-gimmicks-1