Connecticut, the Canary in the National Mineshaft

Such are the parallels between the Malloy and Obama administrations that it might almost be said President Barack Obama is now replicating on a national scale The Malloy Way, with one important exception.

When Governor Dannel Malloy first came into office, Connecticut was facing a daunting deficit of about $3 billion in a biennial budget of about $20 billion. Hoisting the flag of “shared sacrifice,” Mr. Malloy raised taxes, imposing on Connecticut the largest tax increase in state history. Mr. Obama’s most recent gambit is to raise taxes immediately on the country’s malefactors of great wealth in a special session of the congress, saving until tomorrow – “which creeps in this petty pace to the last annals of recorded time” -- any strategy to reduce spending.  

A newly elected Governor Malloy departed sharply from ardent progressives in his party who insisted that the bulk of the tax increases should come mostly from the state’s millionaires; instead of acceding to what budget watchers in Connecticut might call the Donovan plan, Malloy increased tax revenue from enterprises that previously has escaped the tax man. The Malloy tax was broad based, not narrowly contrived.

Mr. Donovan, the Speaker of the House, later ran for the U.S. House of Representatives and was chosen by the Democratic Party as its nominee for the 5^th District. Mr. Donovan’s campaign was driven into the ground by an FBI investigation in the course of which his campaign finance manager and others were arrested. Had Mr. Donovan prevailed in a general election against Republican nominee Andrew Roraback, the Speaker would have entered the U.S. Congress just in time to vote affirmatively for national tax increases on millionaires. He missed the joyous moment by a hair.

We see here a notable difference between Mr. Obama, a perpetual campaigner, and Malloy, a perpetual campaigner. Obama’s tax on millionaires – actually, quarter-millionaires – is little more than a campaign device; the millionaire tax, which will become operative if previous across-the-board Bush tax cuts are adjusted to eliminate tax cuts on quarter-millionaires, will not generate enough revenue to pay for Obama’s new programs, unless it is broadened over time to include a revocation of middle class tax cuts.

But in other respects, Mr. Obama and Mr. Malloy have adopted similar political strategies in addressing deficits.

Mr. Malloy is now facing yet another deficit following his gargantuan tax increase, and the choices available to him to discharge the “shortfall” of his first budget and the coming deficit of his second budget – about $2 billion – are limited, because salary and benefit increases for unionized state workers in future years had been written into previous binding contracts he negotiated with state unions. Mr. Malloy then cannot expect savings from that quarter.

In addition, Mr. Malloy has vowed not to raise taxes to fill what he calls a “shortfall” of about $395 million in his last budget. And as soon as he turns the corner, following an upcoming special session on the “shortfall” in his current budget, Mr. Malloy will find himself face to face with a far larger deficit in the new budget season.

These deficits, the governor and other leading Democrats insist, have been caused by the national recession, the growth of Medicaid spending, the European double-dip recession – all of which, it should be noted, are beyond the reach of solutions that might be adopted by state government, which is a rather complex way of rhetorically disowning responsibility for the deficit. Mr. Obama is masterfully adept at escaping the predictable consequences of his policy victories.

There is no George Bush in Connecticut to serve as an convenient scapegoat but, in the absence of a Republican who may usefully be vilified, a host of sub-demons -- the national recession, the international double-dip recession, which has hit France in the breadbasket, and other convenient agents of Connecticut’s destruction -- will do just as well.

It falls to men and women of good intent to point out that because deficits are caused primarily by exuberant spending, the only curative solution to repetitive deficits is spending reform -- not just temporary cuts in spending, but rather a vigorous effort to identify and remove what one might justly call the many drivers of spending escalation in Connecticut.

Here we tread dangerously on the electrically infused third rail of Connecticut politics. A real constitutional cap on spending tied to increases in the state domestic product or an end to binding arbitration just might reduce the rate of spending increase in annual budgets, about 7 percent per year since the Weicker income tax was levied in 1991. Putting in mothballs chronically failing public schools and replacing entire administrations and teachers with more competent and energized staffs, would reduce labor expenses and provide an incalculable educational benefit. A recent 2011 proficiency study shows that magnet schools in Hartford vastly outperform Hartford public schools: “The gap in 2011 between magnet school performance and neighborhood school performance stands at 26.2 points at Proficient, having widened by just over 7 points in the past four years.”

Solutions that will reposition Connecticut as an economic and educational powerhouse relative to other states – including business tax reductions and regulatory reform – are at hand. It is the courage of useful convictions that is wanting.