This campaign year Governor
Dannel Malloy had hoped to present voters with a tax rebate drawn from a budget
surplus. The rebate, a slender $55 per person, disappeared because the budget
surplus disappeared. On Tuesday, the bad news filtered down from the legislature’s nonpartisan Office of Fiscal
Analysis; state income tax receipts for the current budget ending June 30
will fall $357 million short of what had been budgeted. The crystal ball gazers
in the Malloy administration affected surprise; the governor was disappointed. He
wanted everyone to know, however, that in the event Connecticut produces a
future surplus, some of the over-taxation would be remitted to taxpayers by Mr.
Malloy, assuming the governor is returned to office in the next election cycle.
A number of economists,
the usual culprits, were trotted out to explain who killed Cock Robin.
The explanations
were lucid and nuanced. One economist connected with UConn explained why “less
than three months after the administration touted a $213 million surge in
income tax receipts, on Wednesday, it likely will report a revenue loss close
to twice that size,” according to a story in CTMirror.
“We are in a very,
very different kind of world,” said Professor Fred V. Carstensen, who heads the
University of Connecticut’s economic think-tank. Yes indeed, “Graduate
assistants at The University of Connecticut, “according to the piece in
CTMirror," have voted to unionize -- making them the school's largest union,
with 2,135 members.”
The brave new world
has arrived, even at Connecticut’s most pampered university. Mr. Malloy has
consistently thrown tax dollars in UConn’s direction. The governor could well
afford to be generous after having imposed on struggling workers in the state
the largest tax increase in Connecticut’s history. Alas, it was not enough and,
shortly after arriving at UConn, the university’s new president, Susan Herbst,
raised tuition. UConn has become the prodigal son of Connecticut’s progressive
governor. The disappearing state surplus, Mr. Carstensen was careful not to
mention in his remarks to CTMirror, was to be carved out of that massive tax
increase. But somewhere on the road to prosperity, the tax increase was offset
by a decline in business activity.
From Economics 101,
possibly still taught at UConn, we know this: Raising taxes during the state’s
longest and most crippling recession is not likely to increase business
activity. That was the message delivered by then President John Kennedy in 1962 to the New York Economic Club. And it is growth in business that floods
national and state treasuries with surplus wealth.
In his eye-popping
speech, Mr. Kennedy reasoned: 1) increasing taxes to finance future federal
programs was no longer possible because there are rational limits to all good
things, and successive tax increases had outstripped the tolerance levels of
taxpayers, a situation remarkably similar to present conditions in Connecticut
following two massive tax increases; 2) therefore, it would be prudent to
increase future revenues by decreasing marginal tax rates, which in turn would
increase business activity, thereby flooding federal and state treasuries with
a net increase in taxes that later might be used to finance Great Society
programs. Mr. Kennedy was right on all counts.
According to Don
Klepper-Smith, once chief economic adviser to former Gov. M. Jodi Rell and
presently an analyst with DataCore Partners in New Haven who is often cited in
Connecticut news accounts, Connecticut is facing a “non-traditional business
cycle,” and traditional tools previously used “for fixing the state budget in the
two decades before the Great Recession” -- most notably a boost in the income
tax – are no longer effective. In times past, Connecticut’s “heavy reliance
on Wall Street and investment-related income taxes” brought the state budget
from red to black.
Not anymore.
Following the
CTMirror report, the Hartford Courant noted that all of Connecticut’s revenue streams
were down. Projected Revenue was down $461.5 million since January. The state
income tax, Connecticut’s largest revenue generator was down from $9.021 billion
in January to $8.632 billion. The income, sales, corporate profits, inheritance
and estate, and cigarettes taxes were all down.
The way to recovery
for Connecticut – a long and painful road – was sketched out by Mr. Kennedy way
back in 1962: Reduce taxes and excessive regulation; cut spending every year
until Connecticut’s economy shows positive signs of recovery; extend the
retirement period for state workers; de-unionize government operations wherever
possible; end practices such as binding arbitration that drive up municipal
costs; reduce municipal mandates and vote out anyone who has sacrificed the
long term health of the state for temporary political advantages.
That would be a
start along a path to recovery.
Comments
Those are all good points. Just a quibble:
Part of the problem is that state workers, with the encouragement of governors in the past, have accepted the offer of early retirement – after which they are hired back as consultants or auxiliary workers. I’m familiar with all this because my wife worked for the state.
There are only five ways for the state to reduce labor costs: later retirement, which will also delay pension costs, layoffs without refilling positions, privatization of state functions, which may reduce salaries and pension costs, attrition without refilling jobs and renegotiations of contracts. That’s it. Pick your poison. And then, of course, there’s always Franklin Roosevelt, who was comfortable with unionization in the private market but would not allow unionization of federal workers because:
“It is impossible to bargain collectively with the government,” because government workers do not generate profits; they negotiate for more tax money. A union strike against taxpayers, Mr. Roosevelt said, would be “unthinkable and intolerable.”
http://donpesci.blogspot.com/2012/08/malloy-progressive.html
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Fred Carstensen seems to think that because the State can't reach Nirvana by cutting taxes and reducing regulation it shouldn't do those things. But, there's no scientific question that taxes and regulation, no matter how prudent or beneficial, are a burden on business, are a retardant to economic growth. The object should be to minimize the burden on the "private sector," to maximize the liberty of the self-governing citizenry. Yes,it would be nice if the State were able to maintain our transportation infrastructure. But, with $20billion in annual income it's not even able to fund the pension and benefit promises it's making to government employees. It would be nice if Connecticut were to have less expensive energy, particularly electricity and natural gas, but regulators don't want more generation, transmission, or pipelines. And, how prudent are the State's expenditures? What is the State actually getting for all the money it spends on the education apparatus? If Dannel Malloy's giveaways to favored companies are any indication, there's a lot of really stupid spending going on.
Clearpower (former UTC Fuel Cells and a big recipient of state aid for "green" power) Headed for Chapter 7 or at least big staff reduction in Chapter 11. Lost jobs > 200
Ovation Guitar (one of Charlie Kaman's inventions) moved out of state or country by new owners. At least 50+ jobs lost.
This steady drip of lost jobs and consequently lost income and sales tax receipts overwhelms the gimmicks and one time fixes.
Also you can see that politically favored industries (green) fail the market test. At the same time, where are the new Charlie Kaman's? Innovation is crushed in the new command economy. Only crony's and lawyers make money here.