Thursday, May 29, 2014

Connecticut's Tax And Spend See-Saw

Governor Dannel Malloy has a rough and tumble personality. Even his friends and political associates acknowledge that he has “sharp elbows,” but one of Connecticut’s prominent public pulse takers, director of the Quinnipiac University poll Douglas Schwartz, notes that there are more important issues in elections than likeability: “…the economy is clearly the most important issue in this year's governor’s election.”

Romney-bitten Republicans have heard this one before. Former Governor of Massachusetts Mitt Romney’s presidential campaign was all about the economy, stupid. President Barack Obama version of economic ills was highly bowdlerized, and well-padded with what frightened Republicans call “social issues.” Republicans – especially in Connecticut, where the party is awash in “fiscal conservatives” – consistently retreat with their pants on fire from social issues, leaving the field entirely to Democrats, with predictable results.
 The economy is a broad and touchy subject and, like a porcupine, full of sharp quills. Incumbent chief executives who during the course of their term in office have had ample opportunity to devise and implement solutions to a sluggish economy will insist that any continuing sluggishness is due primarily to the ineptitude of their predecessors. They are not always as quick to note that their predecessors also are responsible for the good fruits incumbents invariably attribute to themselves. But that’s politics, and a savvy politician who cannot shuck off on those preceding him the troubles for which he is responsible -- while at the same time taking credit, Chanticleer-like, for the rising of the morning sun -- perhaps ought to be selling used cars.

Some solutions to chronic debt work, others don’t. On Election Day, November 4, 2014, Connecticut voters will have had the advantage of monitoring for four years Mr. Malloy’s solutions to an anemic economy. The chief solution Mr. Malloy hit upon during his first term is not very different from that of one of his gubernatorial predecessors whom he has declined to swipe with his sharp elbows.

In response to a massive debt in 1991, Mr. Weicker pushed through the General Assembly an income tax bill that raised the revenue ceiling to meet a debt caused by improvident spending and in so doing forever changed the economic posture of Connecticut. Mr. Malloy, facing an almost identical debt, pushed through the Democratic dominated General Assembly the largest tax increase in state history. Despite Mr. Malloy’s tax hike, whoever is elected governor in 2014 will be facing a debt comparable to that faced by Mr. Weicker a quarter century ago. Debt-wise, we are back at square one.

What reasonable deductions may be drawn from Connecticut’s recent economic history? There are several.

Spending is tied inextricably to tax increases: As taxes increase, spending increases. And this is why tax increases are not an effective solution to debt, which is caused by spending and can be reduced in the long term only by spending cuts.

A tax increase – better still, borrowing, which shifts debt payments forward to children yet unborn -- may be an efficient means of meeting an immediate debt, but the unintended consequences of tax increases are, to put it mildly, destructive to the economy for a host of reasons.

Tax increases are economic disincentives. The money taken from a person or company in taxes must be replaced somehow if the person or company, suffering the consequences of a continuing economic slowdown, is to maintain a precarious status quo. Faced with a prospective deficit, persons and companies do the same thing that government should do to maintain equilibrium: They cut spending or they attempt somehow to increase their incoming revenue. A person who cannot afford to pay additional taxes might get another job, always a difficult chore in a stagnant economy. A business seeking to maintain its income stream might lay off workers, dip into its R&D reserves, raise the price of its goods or services, if possible, or move its operations elsewhere. Then too, every dollar removed from the private to the public market place is a dollar that cannot be spent by a person whose prudent spending may stimulate the economy, or a company that otherwise might have used the dollar to increase the real wealth of the state, thus increasing the total revenue available to the state to discharge its own debts. The less disposable income people have, the more difficult it will be to raise revenue. The more revenue a state has at its disposal, the less inclined it will be to govern its own ferocious inclination to spend tax monies.

“Them that’s got shall get; them that ain’t shall loose” applies as well to governments as to the unrepentant rich.  

Before she tucked her gubernatorial campaign to bed, Martha Dean raised a point in her stump speech that was both an eye opener and a reliable applause line: “People in Connecticut are finished. They’re done.” Ms. Dean meant – it is no longer possible to raise taxes to meet a deficit. After boosting taxes to satisfy appropriations that had tripled within the space of four governors, the revenue well has now gone dry. There is no more juice in the lemon. If you raise taxes on people, their own budgets will be pushed into the red. If you raise taxes on companies, they will move to secure the profitability of their operations. It’s over – done – fini. You can’t make lemonade from a lemon peel.

Flashback – 1988. Democrats, who have controlled and shaped Connecticut’s budgets for a half century, have just pushed through a budget that calls for neither tax increases nor budget cuts. Mourning the passing of budget surpluses, Governor William O’Neill, considered a fiscal conservative, never-the-less stresses the need for spending increases, which will be paid out of the state’s “rainy day fund.”

Republicans grouse that Democrats have depleted a fund that was to be used for emergencies only. House Minority Leader Robert G. Jaekle, the New York Times reported, rose in opposition to the measure: ''It's a very dishonest budget, and I'm very disappointed,'' Mr. Jaekle said.

Senate President pro tem John B. Larson of East Hartford responded, ''I think 11 percent [increase in spending] is justified. That's why we have a rainy day fund, so we can offset potential problems.”

From there, Democrats moved the budget forward. Mr. O’Neill’s 1988 budget was $6.8 billion.

And now?



Revenue sources in the general fund, FY 2013 ($ in millions)[7]
State
Sales tax
Personal income tax
Corporate income tax
Gaming tax
Other taxes and fees
Total
Per capita revenue**
Connecticut
$3,857
$8,719
$742
$612
$5,437
$19,366
$5,385.31
$1,034
$1,495
$171
$0
$351
$3,051
$2,296.92
$5,164
$12,831
$1,822
$0
$7,352
$27,169
$4,059.42
$0
$0
$552
$3
$1,728
$2,283
$1,725.03
$873
$1,075
$137
$1
$1,238
$3,324
$3,161.17
Per capita figures are calculated by taking the state's total revenues and dividing by the number of state residents according to United States Census estimates for 2013.[8]
Source: National Association of State Budget Officers

According to a January 2014 report by the nonprofit organization State Budget Solutions, Connecticut had a state debt of over $112 billion. Its state debt per capita was $31,298. The report revealed that state governments faced a combined $5.1 trillion in debt, 33 percent of annual gross state product. The obligation amounts to $16,178 per capita in the nation. A bulk of the state debt -- 79 percent -- was linked to unfunded public pensions.


Such are the very expensive fruits of progressivism and one party government.
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