According to Jonathan Pelto, who ran out of money in his short-lived gubernatorial bid before he could seriously challenge Governor Dannel Malloy, Governor Dannel Malloy’s promise of a tax reduction was “a hoax.” It’s difficult to disagree with him.
Three days prior to Mr. Malloy’s budget address before the General Assembly, the governor appeared on WFSB’s "Face the State” and told moderator Dennis House he would be cutting the sales tax rate from 6.35 percent to 6.20 percent on Nov. 1, and to 5.95 percent more than two years from now, in April of 2017. The governor who had imposed on Connecticut the largest tax increase in its history had become, in the twinkling of an eye, a tax cutter, a miraculous transformation.
Two days before Mr. Malloy’s budget address, Keith Phaneuf of CTMirror explained why Mr. Malloy’s proposed tax cut was, in fact, a net tax increase.
Mr. Malloy’s proposed reduction in the state’s sales tax rate would “save consumers $70 million next fiscal year and $155 million in 2016-17, the administration said.” However, Mr. Malloy will also eliminate as yet unspecified tax exemptions, which of course will increase revenues and amount to a net tax increase. CTMirror calculates that “the other sales tax changes Malloy wants would save the state $146 million per year. Chief among them is cancellation of the sales tax exemption on clothing costing less than $50, a former consumer perk that is supposed to resume on July 1 … Those sales tax changes combined leave the state $70 million ahead in tax receipts next year, with the government and taxpayers essentially breaking even in 2016-17.”
Real net tax reductions spur the economy; fake net tax reductions of the kind proposed by Mr. Malloy spur tax flight in one form or another: Taxpayers who are able to do so flee the state and those condemned to remain on the spot seek special exemptions eagerly offered by a crony capitalist administration.
Two days before Mr. Malloy was due to pull revenue enhancers out of his budget hat, it was not known how much extra the state would reap in tax revenue owing to the cancellation of business exemptions. The state is facing a $1.3 billion deficit in 2015-16 and a $1.4 billion deficit in 2016-17. So then, how much net tax revenue would the changes proposed by Mr. Malloy bring in?
Mr. Malloy promised reporters they would have the figures in two days, after he had presented his budget to the General Assembly. During his gubernatorial campaign, Mr. Malloy had promised – shades of President George H. W. Bush – no new taxes. But a biennial deficit of $2.7 billion is a tempting inducement to raise new revenue. The state of Connecticut, unlike the Federal government, does not have the luxury of printing new dollars to cover the current national $18 plus trillion debt.
Sure enough, on the day of Mr. Malloy’s budget address, CTMirror reported “Gov. Dannel P. Malloy unveiled a budget plan that raises more than $425 million in net new tax receipts, while also canceling more than $425 million in net tax cuts that he signed last term and promised to start after the election.”
The “Bling” item in Mr. Malloy’s budget is a $100 billion project for transportation upgrades. Mr. Malloy’s plan is “comprehensive.” Progressives in the state who ride their bicycles to work will rejoice that Mr. Malloy’s comprehensive plan DOES include bike paths. In the short term, Mr. Malloy will spend about $10 billion on design work to be followed at some point by construction – the cost of the project to be passed along to the unborn, about thirty years out, by which time costs will have increased considerably. The betting is running in favor of a tripling of costs by the time the project is completed. There are two progressive virtues to the Malloy plan: 1) the largest part of the costs will not be assumed immediately by current taxpayers, and 2) large scale, multi-year projects of this kind commit future governors to an escalating spending ramp, assuring that taxes for thirty years out CANNOT be reduced. We all know that every tax is a permit to spend. The Malloy program prevents a denial of future spending permits.
So blinded by the Bling were commentators that they failed to notice the rosy revenue projections upon which Mr. Malloy’s entire budget uneasily rests. Addressing the media in connection with Mr. Malloy’s budget presentation to the General Assembly, Office of Policy Management chief Ben Barnes – who has been having some difficulty lately adding one and one and getting two – noted that revenue growth projections for 2015 would be about 25 percent higher than at present; the previous year, they were 20 percent lower than anticipated.
Mr. Barnes offered the following warning to reporters in the room: “I would caution everyone though with respect to the current year budget and our deficit projections. We are relying on significant revenue in the month of April. We always do. But this year I think that’s especially true. The consensus on revenue that OPM and OFA have achieved assumes that there will be a 25% year over year growth in income tax payments in the month of April for April 2015, April 2014 [he may have meant 2016). For comparison purposes, you may remember that last April  was not a happy April. For the Office of Policy Management, we actually saw a 20% decline in estimates of final payments. So we’re seeing if that will fully rebound and then some this year. I don’t believe this is a bad estimate. I have a lot of confidence in it.”
Apparently, Connecticut’s economy is on the cusp of a dramatic recovery that will be spurred on by net increases in business and other taxes or fees amounting to, according to CTMirror, about a billion dollars.
It’s a sugar plum fairy budget, just the thing a sugar plum fairy state needs in this the Winter of its discontent.