Without spending changes, CT will continue downhill trend

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To the Editor:

With elections to the Legislature not far off, it might be helpful to review some themes from a recent report from the Yankee Institute in Hartford.

Over the past 45 years, CT’s state government has expanded by almost 350%. That’s twice as fast as the state’s real economy has expanded, or the rise in state median income. In contrast, the state’s population has held fairly steady during this period, rising only about 20%.

This half-century spending surge has been financed in taxes, pushing CT to fourth highest per capita in the nation, about $9,800. And, at $46,000 per capita, we have the nation’s highest per capita state debt burden.

The flip side of taxes is among the very highest paid public unions in the nation. CT’s budget woes became famously known during the last recession when the largest tax hike ever was instituted, averaging about $1,200 per capita levied on 50 different items. That tax hike remains in force.

The effects on overzealous spending is clearly evident in the loss of jobs and inability to regain pre-Recession job levels. CT’s employment remains about 50,000 below pre-recession highs – a figure unmatched anywhere in the nation. It’s no secret that firms are leaving CT. But less known is that CT’s population is actually declining. With its high cost of living, CT ranks as the least favorable state for retirees.

The Yankee Institute points out that the $20.6 billion raised in revenue in 2013 came from 365 sources. (No misprint). But the bottom 200 sources produced only about $25 million all together or only about 0.001% of total revenues. Few items escape the CT tax officials. For example, $3,400 collected to inspect public swimming pools, $1,500 collected for rights to exhibit public motion pictures, $9,200 collected to drill wells, $15,500 to become a licensed hypnotist, $30,000 fees from registering a private employment agency. It very likely costs much more to collect these small taxes than the revenues collected. Yet there’s little enthusiasm among legislators to sharply curtail the huge number of taxable items.

The two biggest sources of CT revenues are income taxes – about $8.7 billion or about 42%; and sales taxes – $3.8 billion, or about 18% of total revenues. Corporate taxes generate about $700 million. Gasoline and hospital taxes each generate about $350 million. Together they raise about 7%. All told, these half dozen taxes raise about two-thirds of state revenues. The other 360 taxes raise the remainder together, with about $3 billion from Federal Title XIX medical assistance.

In large measure, CT’s fiscal troubles arose from the expansion of spending facilitated by the introduction of the state’s income tax by Gov. Weicker, which now provides 42% of state revenues. So when recessions take place in the national economy as they do every four or five years or so, CT faces a severe shortfall in income tax revenues. But CT spending continues merrily along.

So new taxes will always be required to make up for lost revenues during recessions.

CT legislators have long known about CT’s budget sensitivity to recessions because of its dependence on the income tax mostly paid by wealthy residents. But the legislature has been reluctant to reduce spending. After all, that would require reducing the state work force and/or salaries. During the last recession, the governor and Democratic legislature chose to impose a historic tax hike rather than reduce state spending.

Looking forward given the political influence of the state’s public unions and their strong support of Democratic legislators, it’s unlikely that CT’s fiscal problems will ever be resolved in the foreseeable future. Just about everyone who has carefully looked at CT’s state budget foresees continued erosion in business firms and many more years required to regain pre-recession job levels. But if a new recession does materialize within a year or two, it could be even 5 or 10 years before job levels regain their pre-recession levels.

Without a major change in spending attitudes by state legislators, CT is destined to remain one of the nation’s least attractive places in the nation to do business, secure employment or retire. Even the very wealthy are leaving CT, which now ranks only third in the proportion of its citizens who are millionaires. Once upon a time, we were first in the nation.

Peter I. Berman



2 responses to “Without spending changes, CT will continue downhill trend”

  1. John Hamlin

    This is all true and it’s obvious that the state needs to become fiscally responsible — perhaps we could then strive to be fiscally savvy. Unfortunately, at some point the state will run out of income producers to tax. But both political parties are complicit in this travesty. Neither party is willing to take on the public employee unions, reduce spending, and stop over regulating business, and invest. We probably need a third party that is fiscally conservative and socially responsible — like the average taxpayer. The bedrock of progress and growth needs to be fiscal responsibility and lower tax burdens. Without that, we will just keep digging a deeper and deeper hole, no matter how much window dressing you conjure up.

  2. Bill

    State republicans appear to stand up for taxpayers more than democrats from what I can see.

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