The State Budget

Progressives can make a real difference with respect to the Connecticut state budget, because everything is up for grabs right now, and no one is particularly happy with the budget put forth by Gov. Malloy. We can lobby our representatives and organize protests, petitions, resolutions by local party committees and other organization, and testimony on both sides of the budget, revenues and expenditures. It’s going to be a long fight, well into the summer, so now is the time to start understanding the issues, setting priorities, and organizing.

However, the issues are many and they are complicated. And sometimes it’s not clear where progressives should stand, especially in areas that affect government employee unions.

The best place to start is by insisting that an austerity budget (expenditure cuts) is neither good nor appropriate for Connecticut. Part of making this argument is criticizing and replacing the effective Republican narrative that Connecticut is an economic mess, that people and businesses are leaving (GE, the example most often given, didn’t leave; Boston paid it to build a new headquarters there) because taxes are too high (the top 5% of CT taxpayers pay a lower effective tax rate than the other 95%; see page 4 of CT Voices for Children’s Revenue Options brief; in addition, according to a Dec. 2016 report by Ernst & Young LLP, CT had America’s lowest total effective business tax rate (TEBTR), an absolute measure that captures business tax rates as a share of the overall economy).

Despite what the Republicans say, Connecticut’s economy is not in terrible shape (see an April 2017 report from three Central CT State Univ. professors, commissioned by the AFL-CIO, which tells a very different story about the state’s economy and taxes). What is terrible is the inequality of our educational and health systems, as well as our regressive taxes, including sales and property taxes and fees; even our progressive income tax isn’t progressive at the highest income levels.

A progressive narrative is that Connecticut has many advantages to offset its being expensive (that’s a Northeastern problem, not a specifically CT problem), and that we can afford to be fair, in both taxes and spending, rather than unnecessarily thrifty.

CT Voices for Children calls for a balanced budget approach (see its Revenue Options brief). On the revenue side, this means the following increases:  (1) modernizing the sales tax by applying it to services and more online transactions (by far the largest tax increase it recommends, it is less regressive than the sales tax on goods, because poor people don’t buy many services); (2) strengthening the corporate income tax, especially by getting rid of tax breaks; (3) reforming wealth and income taxes by increasing income tax for top earners (to make their effective tax rate closer to the average CT resident), increasing the tax rate on dividends and capital gains, and entering a joint regional compact to close the carried interest loophole, and (4) supporting a low-wage fee on employers and a tax on sweetened beverages (although this latter tax would be seriously regressive; it’s about personal health not economic health).

The Malloy budget proposal would put 40% of the burden of revenue increases on the poor and middle class. The largest burden on the middle class would be the elimination of the property tax credit on state income tax returns. The largest burden on the poor would be the reduction in the state Earned Income Tax Credit, an important credit for the working poor. An increase in the cigarette tax would affect both groups.

Gov. Malloy (but not the Democrats in the legislature) wants to make municipalities pay for 1/3 of the amount going into the teachers’ pension funds. An important argument for this is that school districts bargain for the salaries that pensions are based on, but don’t have to pay for the pensions. This situation creates an inappropriate incentive. On the other hand, municipalities are dependent on regressive property taxes and have trouble raising their mill rates. One solution is to let municipalities have a small add-on to sales tax, but this is also a regressive tax. Another alternative is CT Voices for Children’s proposed statewide property tax system to ensure a more fair and stable tax base for education.

With respect to expenditures, proposed cuts across agencies seems fair at first glance, but the burden once again falls more on the poor (and on state employees) than on others.

For some good maps and graphs concerning the CT budget, see this CT Voices page. For those who like to read in-depth analyses, check out the Office of Fiscal Analysis’ Feb. 2016 Tax Expenditure Report.

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