WHAT A DIFFERENCE A GOVERNOR MAKES: CONNECTICUT AND NEW JERSEY
What Connecticut Governor Dannel Malloy’s tax hike plan tells us about liberal governance.
The ‘Anti-Christie’ That’s how Connecticut’s Democratic Governor Dannel Malloy describes himself in contrast to New Jersey Governor Chris Christie, and we’d have to say he’s right. Nutmeg State residents will pay for the appellation.
Whereas Mr. Christie has vetoed tax increases, cut spending and is trying to reform public pensions, Mr. Malloy wants to close the Connecticut budget deficit with a huge tax hike and the legislature in Hartford may approve it as early as next week. It’s worth exploring Connecticut’s tax gamble, not least because it is so at odds with the fiscal strategy that most Republican Governors and New York Democrat Andrew Cuomo are employing to repair their state finances.
The Yankee Institute, a free market think tank, counts some two dozen new taxes in Mr. Malloy’s budget. He would raise taxes on cigarettes, gasoline, Internet sales, drugs, booze and wealthy estates. Property tax bills would climb by $500 for the average homeowner.
Getty Images Connecticut Gov. Dannel Malloy
He also wants to kick every Connecticut worker with earnings above $50,000 into a higher tax bracket. Those who make more than $500,000 would see their tax rate rise to 6.7% from 6.5%. Even that’s not enough for Democrats in the legislature who want to raise it to 7%.
For anyone who thinks income tax hikes are the financial salvation of states, Connecticut’s history is instructive. Governor Lowell Weicker sold an income tax in 1991 as a one-time reform that would keep sales and property taxes low. Instead, a state that paid its bills for 200 years without an income tax and had become one of the richest states in per capita income is now raising income taxes for the fourth time in 20 years.
This is what always happens when a state introduces an income tax: A gusher of new revenue leads to higher spending, which leads the politicians to demand higher rates; rinse the taxpayers and repeat.
What started in Connecticut as a 4.5% top marginal rate is now 6.5%, and yet the state is still running a $3.5 billion deficit. As the nearby table shows, state spending growth has far exceeded gains in median income since the income tax was introduced. Spending growth also roughly doubled the increase in population plus inflation (about 72%) over the period.
Mr. Malloy also wants to raise the sales tax to 6.25% from 6% and add another 0.1% surtax for Connecticut cities. Mr. Malloy would apply the sales tax for the first time to dozens of services, including parking, cosmetic surgery, yoga classes, manicures and pet grooming. We support a broader sales tax base for states, but only in return for lower rates. Mr. Malloy wants to broaden the tax base and raise rates.
There’s more. Echoing his base of public union support, Mr. Malloy wants to impose a sales surtax on certain “luxury” goods. This would apply to yachts, private planes, classic cars, clothing of more than $1,000 and jewelry. This sounds like a replay of the notorious “luxury tax” that former U.S. Senator George Mitchell inserted into the 1990 budget deal. That tax not only failed to raise the expected revenue, it so harmed boat builders that the tax was soon repealed. Since even the number-crunchers in Hartford predict the luxury tax will raise a paltry $4 million a year, the only purpose seems to be class envy.
Much like President Obama, Mr. Malloy is selling his tax increases as “shared sacrifice,” except that those who benefit from state spending sacrifice very little. Spending rises by 2.5% under his plan. Like so many states, Connecticut’s finances suffer from high state employee salaries and pensions. Yet Mr. Malloy has so far promised only $1 billion in undefined union “concessions.”
Connecticut is adopting the Illinois model of raising taxes on everyone to avoid serious spending restraint or pension reform. When these tax increases prove not to be enough, Mr. Malloy will propose another one. A state that was once the Northeast refuge from high tax New York, New Jersey, Rhode Island and Massachusetts is fast becoming another slow growth, union-dominated, job-shedding imitation.
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