The Hartford Courant ran an article today featuring the Yankee Institute’s research ”A Look at Who Pays Connecticut’s Income Tax” by Executive Director Fergus Cullen.

“It’s easy to bash the rich and say they aren’t pulling their weight, but we did the math,” said Fergus Cullen, the Yankee Institute’s executive director. “The idea that you can use the successful as a mule to carry the load for everyone else is wrong.

The article features the Yankee Institute research, including several key statistics regarding where income tax revenue actually is raised.

At the opposite end of the philosophical spectrum is the Yankee Institute for Public Policy, a conservative counterpoint to Voices for Children that analyzes much of the same data.

The Yankee Institute studied the tax filings at the state Department of Revenue Services that outline the number of income tax filers in various income categories. The institute’s report showed that 46.8 percent of all state income taxes in 2007 were paid by residents living in Fairfield County. That is more money than those living in six of the state’s other eight counties — Litchfield, New Haven, Middlesex, Tolland, Windham and New London — combined.

You can download the full report here.

Published July 16, 2009 by the Yankee Institute for Public Policy

“There is a danger to the euphoria that surrounds an unexpected source of revenue. This is the first session since I have been here [in 1992] that there seems to be so little concern with the overall increases in spending, and I think the tobacco settlement is part of that. It’s a problem. Legislators have proposals to spend it five times over, and we don’t have it once.”

— Connecticut State Senator Robert Genuario, on the eve of receiving the first infusion from the 1998 Tobacco Settlement.

“My greatest achievement was going after the tobacco companies. But my biggest disappointment is not being able to determine how the nearly $5 billion in settlement money allocated to Connecticut has been spent.”

—Connecticut Attorney General Richard Blumenthal, one of the top five lead attorneys in the 1998 Tobacco Settlement, ten years later.

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Executive Summary

In 1998, Connecticut became one of 46 beneficiaries of the multi-state, $246 billion Tobacco Settlement, a deal hammered out in backrooms between Attorneys General and the four major tobacco companies.

For Connecticut, the settlement amounts to between $3.6 and $5 billion over the first 25 years of the in-perpetuity agreement. At the time, public health advocates and state Attorney General Richard Blumenthal, who represented Connecticut in the lawsuit, expected that tobacco prevention and treatment programs would receive much of these funds.

Ten years later Blumenthal was calling the state’s handling of the tobacco revenue “a moral and social failure.”

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Key findings of this report:

• Connecticut has received nearly $1.29 billion from the settlement since distributions began in Fiscal Year 2000.
• Of that, only $23 million, or less than 2% of the total Tobacco Settlement Funds, have been used on programs specific to reducing the number of smokers or anti-tobacco efforts.
• 86% of Tobacco Settlement funds, $1.1 billion, ended up in the General Fund for unrestricted spending.
• The Tobacco Health and Trust Fund, set up to fund tobacco prevention, cessation and health programs, received only $134 million from the Tobacco Settlement over time.
• Raids on that Trust Fund by the General Assembly have resulting in just $9.2 million in spending and a projected balance of just $11.1 million.
• The terms of the agreement allowed the tobacco companies to shift the cost of the settlement to consumers without fear of losing market share.
• Connecticut collected an additional $2 billion in cigarette tax revenue since settlement funds started flowing to the state, bringing the state’s total cigarette-related revenue to more than $3 billion during these nine years.
• In 2008, smokers paid the state of Connecticut nearly half a billion dollars in combined cigarette taxes and settlement money.
• Despite all the revenue the state takes in from smokers, Connecticut was ranked 51st in the nation by the Campaign for Tobacco-Free Kids in 2008 for failing to spend enough on tobacco prevention. That year Connecticut spent just $1.19 million on tobacco prevention. For comparison, the Centers for Disease Control recommended $43.9 million.

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by Fergus Cullen

This article originally ran in the Waterbury Republican-American on Sunday, July 5, 2009.

Will Rogers might have said, “Half of all money spent by government is wasted. The government just needs to hire a few more bureaucrats to figure out which half.” Unfortunately, less than half of the so-called stimulus money allocated to Connecticut will be spent on things that actually stimulate the economy, according to a new analysis by the Yankee Institute.

It’s been three months since the $787 billion American Recovery and Reinvestment Act (ARRA) – the “Stimulus Bill” – zipped through Congress. The theory behind the stimulus is that a surge in government spending, funded by borrowing money and increasing the deficit, will lead to economic recovery and higher employment. Here are seven reasons to be skeptical about how stimulus money is being spent in Connecticut:

Most federal stimulus money replaces existing state money: Of the $3.5 billion in government stimulus spending allocated to Connecticut over the next three years, nearly two-thirds of it replaces existing state funds. The bulk of this money is comprised of $1.3 billion in extra federal funding for Medicaid services for the poor and $745 million for local education. Moving this burden from state taxpayers to federal taxpayers (and let’s not forget, these groups represent different pockets in the same pair of pants – your pants) may help the state avoid cuts, lessen the urge to raise taxes, and protect existing government jobs, but it doesn’t add new money to the picture, so it’s not stimulative.

The majority of that money goes to relatively strong industries: The two industries that get the most stimulus funding – health care and public education – are also the two industries least affected by the current recession. These sectors, along with government employment, have actually added jobs during the current recession.

Tax cuts aren’t always stimulative. We at the Yankee Institute are all for tax cuts, and about 30 percent of Connecticut stimulus money – $1.6 billion over three years, which is on top of the $3.5 billion in direct spending – is in the form of tax cuts. (For comparison, the Bush administration’s 2008 tax rebates totaled $1.1 billion in Connecticut, and that was compressed into one year, not three.) The theory that tax cuts stimulate the economy hinges on the assumption that the money gets spent by consumers and businesses, but they could save the extra money or use it to pay credit card debt instead. Tax cuts in the form of reduced withholding are spread out little by little over the year, so consumers might not even feel it.

Spending in the future isn’t stimulative today: Despite all the talk of “shovel-ready” projects, the Congressional Budget Office analysis of ARRA estimates that only 21 percent of spending will take place this fiscal year. Talk of rising employment in 2010 or 2011 doesn’t do much for former manufacturing or housing sector workers who need a job today.

Connecticut gets less than others: Federal tax policy is fundamentally redistributive, transferring money from wealthier states and individuals to poorer ones. This is true of stimulus spending as well. At $769 per capita, Connecticut receives less than its neighboring states and has the second lowest rate in New England.

Spending postpones the day of reckoning: State government officials have struggled mightily to deal with the existing budget deficit while balancing the next one. Now imagine how difficult it will be to balance future budgets when the stimulus windfall is gone.

Free money warps priorities: If you think government is expensive now, wait until it’s free. The state is buying 106 new hybrid buses for $71 million and funding 4,500 summer jobs for young people for $11 million more. There’s $3 million for lead abatement in Waterbury, $800,000 for a new roof on a building at Camp Rell in Niantic, and $585,000 to fight internet crime. It is doubtful whether a majority of stimulus-funded projects would earn funding if they had to compete for existing scarce resources.

The Yankee Institute study does identify some expected Connecticut job creation as a result of $3.5 billion in spending. We estimate that about 700 construction jobs per year will be supported by ARRA’s increased highway funds. Water and sewer infrastructure projects will support about 145 jobs per year. The individual tax breaks, depending upon the percentage of tax cuts that get spent versus saved, could have the largest impact, supporting another 7,310 jobs in Connecticut.

Nonetheless, we remain skeptical about measuring “jobs saved” – the last refuge for policies that appear to create few if any new jobs. But who knows? The job some future politican claims to have saved due to the stimulus money may be yours.

Fergus Cullen (fergus@yankeeinstitute.org) is Executive Director of the Yankee Institute, a Hartford think tank that advocates free market solutions to public policy issues. The full report is available at yankeeinstitute.org