In closing a $2 billion hole in Connecticut’s next budget, Governor Dannel Malloy does not have many cards left in his hand. In his first budget, Mr. Malloy was careful to steer a path around state cuts to municipalities. He chose instead to execute a broad based tax increase, the largest in state history. That hefty tax increase permitted the governor to “hold the towns blameless,” in the words of recently installed Speaker of the State House Brendan Sharkey.
That was then. And now?
Said Mr. Sharkey after his installation, “It’s inevitable that there are going to be some cuts. I hate to say that. I’ve been a longtime advocate for protecting cities and towns and boards of education from cuts in funding from the state. I don’t think it’s news to any cities and towns and boards of education out there. They are very appreciative of the fact that we’ve done as much as we have to hold them blameless for the last two years.”
It may be important to notice that the cuts in state aid to towns will not of itself reduce state spending. Cuts in state aid to towns will spur either municipal spending cuts, property tax increases or both. A cut in state aid necessarily would result in a loss of revenue, leaving municipalities with a political Hobson ’s choice.
Tax increases are anathema to both town and state officials – because those who pay town and state bills, municipal and state taxpayers, are having a great deal of trouble making ends meet. Taxpayers in the state are maxed out on taxes, thanks in large part to improvident state legislators who have consistently raised taxes and as consistently increased spending.
Legislators tend to operate under the illusion that federal, state and municipal tax payers are discrete categories, conveniently forgetting that the federal tax payer is the state taxpayer is the municipal property tax payer. Connecticut residents Mr. and Mrs. Smith, if they earn more than $250,000, will get socked with very hefty federal tax increases as the Obama administration unfurls. Those tax increases, in the absence of cuts to entitlement programs, will leave state taxpayers with less money in their budgets to absorb future state and municipal tax increases. When Mr. Malloy imposed upon Connecticut citizens the largest tax increase in state history, he made it less possible for municipalities to increase property taxes. Federal, state and municipal taxes are all drawn from the same pockets.
Tax increases are particularly onerous right now for a host of reasons, not the least of which is this: As the poor and lower middle class are more often sheltered from paying taxes, the tax load designed by progressives is shifted increasingly to a smaller number of people, so that the incentive to spend increases in proportion to a decrease in the number of people who finance the spending. To put it plainly, tax consumers are increasing and tax payers are decreasing. And of course Mr. and Mrs. Smith pay federal, state and municipal taxes, so that an increase any one of the categories affects their ability to pay in the remaining two categories.
A measure of relief will come to Mr. and Mrs. Smith only if the town or the state or the federal government cuts spending, at which point Mr. and Mrs. Smith will be able to afford a higher payment to the remaining two taxing authorities. None of this is rocket science. Just as you cannot squeeze water from a stone, so you cannot squeeze tax receipts from people or businesses in a declining economy. The money just isn’t there.
And the enticing notion that “millionaires,” defined by tax gobbling politicians as households earning more than $250,000 a year, will be able to pick up the tab left by the rest of us is little more than a campaign slogan successfully used by Democrats this election season to retain the White House and the U.S. Senate. But reality, like God, does not play dice with the universe. If you are spending more than you are taking in to pay expenses, reality, sooner or later, will have a word with you.
Municipalities face the same problem as the state, which is why mayors and town administrators should insist that every dollar reduced by the state to towns and cities should be off-set by reductions in costly regulations and state mandates, a chorus of common sense Republicans should be happy to join.
Connecticut, one hopes, is fast approaching a “bolt out of the blue’ realization that the tax cupboard is bare, at which point, one hopes, Mr. Sharkey and other free spenders within Democratic Party ranks will realize – it’s time to cut spending, reduce business taxes to re-ignite Connecticut’s flagging economy and pare back job slaying regulations.