Monday, December 03, 2012
Why Taxes Will Be Raised
A business reporter for a Hartford newspaper writes in an above the fold, front page story, “In An Era of Fiscal Crisis, Malloy Has Few Places To Run,” that “Malloy's budget chief issued a firm statement in writing: ‘The Governor will NOT propose tax increases as a solution to these challenges.’"
The “challenges” are a budget deficit in Governor Dannel Malloy’s first budget of $362 million, a figure that will escalate in coming weeks, and a future projected deficit of $960 million per year in each of the next three years. Connecticut’s total state debt – including pension fund debt of $60 billion and $20 billion in bonded debt – is the third highest debt per capita in the United States and represents about 40 percent of the state’s Gross Domestic Product (GDP).
The business reporter – and, indeed, most reporters in the state – was much impressed that Mr. Malloy’s budget hawk, Office of Policy Management chief Ben Barnes, had put the governor’s pledge in writing. And of course that imposing “NOT” in such visible caps strongly suggests Mr. Malloy’s strenuous aversion to tax increases. And yet, though reporters in the state now have in hand a WRITTEN pledge that the governor will NOT propose tax increases, many political watchers are riven with doubts.
If taxes are not increased, they reason, how will Mr. Malloy discharge such a large and imposing deficit?
None of the conditions to which Mr. Malloy has attributed the state’s metastasizing deficit – larger Medicaid payments, the continuing evisceration of the nation’s economy, the near certainty that all of Europe, with the possible exception of Germany, has entered a double dip recession – will change substantially within the next fiscal year. It took Connecticut a full ten years to recover the jobs lost in the preceding soft recession beginning in the early 1990’s; and the current recession – marked by increased government spending, higher taxes levied on entrepreneurial investment and the Dodd-Frank regulatory Octopussy – is certain to last longer.
In addition, Mr. Malloy seriously hobbled himself when he made in his first budget an offer to state union workers they could not refuse. In return for dubious saving, Mr. Malloy offered SEBAC, a union coalition authorized to negotiate contracts with the governor, salary raises of three percent each year nine years out, a deal characterized by retiring State Senator Edith Prague as one that unions would be nuts to reject. When the unions accepted the deal, they removed an important tool from the governor’s tool box. At this point, Mr. Malloy can only realize significant cost savings from state workers by abrogating contracts – not likely.
Such a move would require co-operation from a General Assembly dominated by progressive Democrats.
Indeed, discharging the bulk of the state’s continuing budget deficits, not to mention Connecticut’s alarming pension liability deficit, requires an internal assent from majority Democrats -- ideological prisoners of a progressive ideology that has failed most conspicuously in Europe -- that likely will remain stillborn.
Would the “firm statement” issued by Mr. Barnes on Mr. Malloy’s behalf have presented a less firm commitment to spending reductions had Mr. Barnes chosen to emphasize a different word in Mr. Malloy’s categorical imperative: “The Governor will not PROPOSE tax increases as a solution to these challenges."
This rendering leaves open the possibility that progressive Democrats in the General Assembly, having rejected Mr. Malloy’s no-tax-increase intention for the upcoming special session called to liquidate the last fiscal year’s budget deficit, will then PROPOSE at some point tax increases designed to discharge an accumulative deficit of some $3 billion, give or take a few hundred millions, in the new fiscal year.
It has been said that Mr. Malloy will need Republican cooperation in the special session to enact savings that accomplish his intention – to discharge last fiscal year’s deficit without raising taxes. The governor’s intention with respect to the new fiscal year’s budget, which carries a much larger deficit, is usefully ambiguous.
Republicans in the General Assembly no doubt will recall they were unceremoniously stiffed in the earlier session that now has given birth to a $362 million deficit. Mr. Malloy did not need Republican good will to arrange his deficit producing first budget, which included the largest tax increase in Connecticut history, and Democrats were on the whole delighted to see Republicans playing the fool. Nor will the governor need Republican support in the creation of his second fiscal year budget, which may entail similar Potemkin Village savings and yet another massive tax increase. Republican leaders in the General Assembly should prepare now for the possible stiffing – before they negotiate with the governor to liquidate in special session the Democrat’s first imbalanced deficit ridden budget.
To do otherwise would be to play the fool most progressives in the dominant Democratic Party believe Republicans to be: Fool me once, shame on you; fool me twice, shame on me. There are some happy signs that voters, already stung by massive tax increases, will not during the next elections be inclined to suffer fools gladly.
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