Hartford Business Journal

20 Hartford Business Journal • May 8, 2017 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Higher income taxes won't solve CT's problems A las, Connecticut's fiscal crisis has reached a new low, bringing the state and its policymakers closer to the day of reckoning. After hoping to avoid tax increases this legislative session, news that the state's projected deficits over the next two fiscal years grew by another billion dollars — to about $5 billion — has some Democratic leaders eyeing tax increases to balance the budget. And despite Connecticut's precipitous drop in income tax revenues, particularly from high earners, some lawmakers — laughably — want to once again raise tax rates on the wealthy. That may be a popular political move among liberal Democrats in the state and their state employee union supporters, but it will further weaken Connecti- cut's economy, prolonging and potentially exacerbating the crisis in the long term. This isn't to say our state's wealthiest residents can't afford to pay higher taxes. Connecticut's top income tax rate of 6.99 percent for joint filers making over $500,000 is lower than at least 10 other states, according to the Tax Foundation. But we've already saddled our highest earners with an income tax hike in 2011, raising the top rate from 6.5 percent to 6.99 percent. We can't continue to erode the few competitive advantages we have left in our tax code. Connecticut has always been a bastion for wealthy residents (our per-capita income is still among the highest in the nation at $71,033), particularly before it adopted an income tax in 1991, but money walks. If we continue to target our highest earners — who provide a large portion of state tax dollars — they will flee to other states. That's not just theory, it's economic reality: Connecticut's population has shrunk in each of the last three years. We are in an intense competition with other states and countries for workforce tal- ent, jobs and wealth. Lawmakers must govern within those constructs. In fact, the most recent cause of our burgeoning state deficit, which grew seemingly overnight from $3.6 billion over two years to nearly $5 billion, is eroding income tax revenues from the state's 100 largest taxpayers, who collectively paid 45 percent less this year than a year earlier. Much of that had to do with lower investment-related earnings including capital gains, but it still shows the vulnerabilities of relying on a small group of taxpayers to shoulder a large portion of the budget. Even still, House Speaker Joe Aresimowicz (D-Berlin) said last week he can no lon- ger rule out higher income taxes because of the state's worsening budget deficits. And the Finance, Revenue and Bonding Committee has already held a public hearing to increase the top marginal income tax rate to 7.49 percent. (Another wrong-minded proposal our crack legislators are considering would tax hedge funds' investment management services income at 19 percent, which would encourage a further thinning out of that important industry.) Tax hikes, however, have proven ineffective in helping right Connecticut's sinking fiscal ship. After experiencing two of the largest tax hikes in state history in 2011 and 2015, our bud- get remains far out of balance, and our economy remains one of the weakest in the nation. We understand the options for lawmakers are few. And if we do, by some miracle, avoid higher taxes at the state level, many local taxpayers will likely take it on the chin as the state reduces aid to cities and towns, forcing some municipalities to raise prop- erty taxes to make ends meet. It's time for a vast restructuring of the state government apparatus, which is no longer affordable to Connecticut taxpayers. Lawmakers must rethink every service provided to residents and significantly reduce spending and/or the state workforce, while still preserving investments in transportation and other areas that will make the state more competitive economically. Unfortunately, not even a slash-and-burn approach to state spending may be enough to make ends meet. n OTHER VOICES Governor yields on taxes, inviting more of the same By Chris Powell C onnecticut residents who remember the enactment of the state income tax in 1991 can only laugh ruefully as state government's revenue collapses again, this time largely on account of falling receipts from the income tax. Twenty-six years ago the tax's advocates declared that the income tax would stabilize rev- enue and be much more reliable than other taxes. But now receipts from other taxes are holding up far better than those from the income tax. Back then there was a theoretical argument for the income tax — that it would correlate more than other taxes with ability to pay, drawing more from wealth. But it was not a good argu- ment in practice, since as it was structured, the income tax replaced the state's taxes on divi- dends and capital gains, which already were being paid largely by the wealthy. Thus the income tax turned out to be mainly a tax on the middle class, and the stabilization and reliability argu- ments were only the usual lies from the government and welfare classes. As always all they want- ed was more money. Governor Mal- loy, a Democrat who in the last six years helped enact two tax increases even larger than the income tax, claimed in recent weeks to oppose raising taxes again. But last week, as revenue collapsed by the hour, the governor gave way on taxes, even before any savings for the next state budget had been achieved. With the governor giving way, the leaders of the Democratic majorities in the General Assem- bly also dropped their poses of restraint. Now they will pursue doing still more of what has driven the state down. Democrats and Republicans alike have been calling state government's financial cir- cumstances "dire," but state and municipal employees are still being paid not to work on Columbus Day and five other inconsequen- tial holidays. That is, no one in authority has even tried yet to control spending. No one in authority has identified the problem and called for treating it as the emergency it is. The problem is that the premises of the three most expensive state government policies are mistaken and serve only special interests, not the public. Collective bargaining for government employees and binding arbitration of their union contracts do not produce efficiency. They only remove the great bulk of government expense from the ordinary democratic process, making it an untouchable "fixed cost." These policies have turned state government into a pension and benefit society that sacrifices the most innocent/needy, since there are no bind- ing arbitration and union contracts for them. Education policy — that is, social promotion — doesn't produce a skilled and civic-minded workforce but instead devalues education and creates huge need for expensive remediation. Welfare policy doesn't reduce poverty but subsidizes antisocial behavior and thereby perpetuates poverty. There will be no saving Connecticut until these mistaken premises are acknowledged and the policies that flow from them changed. But that will never happen when raising taxes is an option. Neither will any change result from the silly posturing done last week by the state Senate's Democratic leaders. They proposed that the budget negotia - tions of the governor and legislative lead- ers be conducted "transparently," held in public and broadcast on state government's television network, CT-N. This "transparency" proposal came from the same Democratic senators who for years have been hiding "rats" — unvetted and dis- graceful legislation — in the budget "imple- menter" bills that are adopted at the last minute by the legislature without review or debate. The "transparency" Democrats almost surely will be shoveling "rats" into law again this year. n Chris Powell is managing editor of the Journal Inquirer in Manchester. HARTFORDBUSINESS.COM POLL Will Gov. Malloy extract his targeted $1.6 billion in concessions from state employee unions? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Will state lawmakers raise taxes to balance the budget? 82.8% Yes 17.2% No Chris Powell ▶ ▶ No one in authority has even tried yet to control spending. No one in authority has identified the problem and called for treating it as the emergency it is. Send Us Your Letters The Hartford Business Journal welcomes letters to the editor and guest commentaries for our opinion pages. Electronic submissions are preferred and welcome at: editor@HartfordBusiness.com.

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