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Crowding Out What Matters

The Connecticut budget is on autopilot – and no one’s at the wheel. State government grows more expensive each year because of expensive promises to state employees and endless borrowing.

A half-billion dollar increase in spending doesn’t even cover the growth in these two areas. “We’re in the alarming position of spending a half billion more but cutting services,” said Carol Platt Liebau, Yankee Institute president.

The Yankee Institute urges the General Assembly to adopt a budget that does not raise taxes and respects the spending cap. State leaders also need to begin reforming our state workforce to make it more flexible and more affordable.

“It’s wrong for politicians to make promises they can’t keep. Connecticut’s government has made too many promises for too long. Soon it will be impossible to keep them. We need to begin the difficult but essential process of changing our approach,” Liebau said. “Our budget is on autopilot. Citizens must demand that their leaders regain control. Connecticut can do better.”

The latest Yankee Institute policy brief, Crowding Out What Matters, suggests a number of ways to balance the budget while increasing the value of each taxpayer dollar spent.

Create jobs. Instead of passing distracting tax cuts, we should focus on helping employers hire. Eliminate the business entity tax and end the corporate surcharge.

Help people in need. Improve the earned income tax credit. Cancel cuts to Medicaid providers.

Improve quality of life by ending traffic nightmares. Use tolls or congestion pricing to pay for transportation projects while reducing other taxes. Cancel the $1+ billion New Haven to Springfield rail line planned for just 3,500 people.

Cut unnecessary spending. Reduce “phantom student” grants by 10 percent. Bill agencies for 5 percent of fringe benefits. Increase cost-sharing for state employee health insurance.

Take the budget off autopilot. Delay all bonding by six months. Create a severance fund to cover the cost of state-employee layoffs. End cost-of-living increases for state retirees who earn more than the median income.

Crowding Out What Matters

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State Would Have $5.2 Billion More Under Spending Cap

Connecticut would have $5.2 billion more in its rainy day fund if lawmakers had kept spending under the state’s constitutional spending cap, according to a new Yankee Institute policy brief.

The Yankee Institute is urging Gov. Malloy and state legislators to honor the cap in the next two-year budget, which will be released in February.

“This budget needs to be the first step toward a sustainable government and fairness for taxpayers. Lawmakers can accomplish these goals by getting state spending under control,” said Carol Platt Liebau, president of the Yankee Institute. “The spending cap is an important – and popular – feature of our government. A good government needs boundaries”

The spending cap was implemented in 1991, the same year the state adopted an income tax. Since 1991, state spending has nearly doubled while Connecticut’s population has only gone up 10 percent.

“Our research shows that if the state had adhered to the spending cap, we could have had a substantial rainy day fund in place before the start of the 2008 recession,” said Suzanne Bates, Yankee Institute’s policy director and author of the study. “Because we didn’t save when we had the chance, we were unprepared when financial disaster hit.”

Instead of slowing the growth of state government expenditures, lawmakers implemented a tax hike in 2011 that slowed the state’s recovery from the recession. Economic growth in Connecticut has lagged the national rate every year since 2008.

Now the state is facing deficits of $1.3 billion and $1.4 billion for fiscal years 2016 and 2017. Lawmakers need to close these gaps by cutting the cost of state government, instead of further burdening Connecticut’s citizens.

The recent mid-year cuts to state government show that last-minute decisions leave us with fewer options. The responsible approach is to make structural changes to prevent future cuts from hurting those most in need.

The spending cap policy brief is the first in a new series of policy briefs that the Yankee Institute will publish in order to address the ways Connecticut can get its economy moving again so every resident has an open road to opportunity.

Sustainable Spending: Respect the Cap by Suzanne Bates

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Bottom 10 yet again

Connecticut in Bottom 10 For Business Tax Climate

Other states, like New York, enacting significant tax reform

EAST HARTFORD – While other states are starting to initiate significant tax reform, Connecticut still has not done anything to make its tax climate more business-friendly, despite its placement at the bottom of several rankings and its slow economic growth.

Today the Tax Foundation released its 2015 State Business Tax Climate Index. Connecticut was ranked 42nd out of the 50 states.

“Connecticut loses too many jobs to other states because of its high-tax environment,” said Carol Platt Liebau, president of the Yankee Institute. “We want our children to stay and work in Connecticut, but if our policies keep driving businesses to other states, there just won’t be enough jobs here.”

“With elections just one week away, it’s important for candidates to explain exactly how they plan to improve the economy and create jobs through better tax policy,” Liebau said. “The example of North Carolina shows this can be done.”

Several states enacted significant reform this year. North Carolina was able to change its ranking from 44th place last year to 16th place this year because of the tax reform it enacted, including adjustments to its personal income tax and corporate income tax rates and structure.

Here Comes New York

Although New York is still ranked 49th, its ranking is expected to improve in the coming year because of tax reform enacted there last year. Gov. Andrew Cuomo received an award this year from the Tax Foundation for the state’s efforts. However, those reforms were not all included in this year’s business tax rankings because they have not all gone into effect. New York’s corporate income tax rate, once fully enacted, will drop to 6.5 percent, among many other significant changes.

“Here comes New York,” Liebau said, “and Connecticut had better watch out. Up until now, our state has benefited from the many New York firms who came here for a slightly friendlier business climate.  With New York’s reforms, this ‘free pass’ may be coming to an end.”

High Taxes Across the Board

Although state officials like to claim that the state has a friendly business tax environment because of its 7.5% corporate income tax rate, which places it about in the middle of other states, our state’s very high property taxes and relatively high taxes across the board account for Connecticut’s rank toward the bottom.

Other factors that affected the state’s placement include:

  • Connecticut has the second highest per capita property taxes in the nation;
  • The state levies sales taxes on many business-to-business transactions;
  • Several other states don’t have at least one of the major taxes (corporate income tax, personal income tax, sales tax), which significantly improves their ranking;
  • We are worst in the nation for our capital stock tax rate, which is a tax on business wealth;
  • We are the only state with a gift tax, which significantly effects small businesses;
  • Our alternative minimum tax for personal income taxes is also detrimental to small businesses, many of which are taxed at the personal income tax rates.

The study also says that business incentive programs do less to help states attract and retain businesses than an overall business-friendly tax environment.

In other words, it is better to have a long-lasting business-friendly tax structure than to have short-term programs like Connecticut’s First Five program.

The study notes that companies are more likely to move from one state to another than from the United States to foreign countries. As a result, Connecticut’s low ranking compared to other states makes it difficult to remain competitive and attract jobs.

The study is here: http://taxfoundation.org/article/2015-state-business-tax-climate-index

The Tax Foundation’s press release is here: http://taxfoundation.org/sites/taxfoundation.org/files/docs/Connecticut-Ranks-42nd-Best-on-Business-Taxes.pdf

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Too Small to Keep

Connecticut collects revenue from at least 371 unique sources of revenue, but the bottom 200 don’t even produce 1 percent of total state revenue. Are these really worth keeping? Yankee examines the issue in Too Small to Keep.

The research from the Yankee Institute reveals that most state agencies actually have no idea how much it costs them to collect taxes and fees. But they keep on collecting them.

Yankee recommends that the General Assembly require the administrative costs of tax collection be calculated by agencies and included in the Results-Based Accountability reports that most state agencies submit to the General Assembly. We also recommend the inclusion of sunset clauses in all revenue-raising legislation to force the General Assembly to review and renew revenue sources on a periodic basis.

Too Small to Keep

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Connecticut’s 371 Taxes and Fees

The State of Connecticut collects revenue from more than 371 unique sources according to the latest report from the Yankee Institute. While the cost of government has increased threefold over the past 40 years, the state’s population and median income have failed to keep up. At least part of the reason may be the numerous ways in which the State of Connecticut serves as an obstacle to economic opportunity and growth.

In addition to updating the line-by-line revenue listing and the now infamous chart, Yankee also reminds citizens about the state’s ignominious list of lasts, the numerous rankings on which Connecticut is the worst in the nation.

Check out the full flyer.

Taxes and Fees Flyer

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Yankee PolicyWiki

EAST HARTFORD – The Yankee Institute is pleased to unveil its old research in a new format: the Yankee Institute PolicyWiki. The PolicyWiki brings the Yankee Institute’s award-winning public policy research to an online format familiar to millions of Internet users.

“Read, browse, click, and read again,” said Heath Fahle, the Yankee Institute’s Deputy Director. “The PolicyWiki makes it even easier than ever for the public to access our research.”

The PolicyWiki can be found at http://www.yankeeinstitute.org/policywiki

 

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2012 Policy Guide

Connecticut’s State Motto is Qui Transtulit Sustinet, He Who Transplanted Still Sustains. But over the last twenty years, state trends point to a different reality: He who transplanted is transplanting again to sustain. Connecticut suffered a net loss of 325,526 residents during that time, or about one in ten residents. The transplants are now the people leaving Connecticut, not coming here, and their departure threatens the state’s ability to sustain and thrive in the future.

The top states former CT residents moved to are Florida, North Carolina, Georgia, Virginia, and South Carolina, five states with lower taxes, population density, union membership and cost of living, as well as warmer weather. They took with them an estimated $4.8 billion in purchasing power and $567 million they would have paid in state and local taxes. In the competition for people, jobs, and economic growth, people who used to be Connecticut residents are voting with their feet.

In light of the state’s economic record over last twenty years, the trend is not shocking. Connecticut is one of just three states to experience a net job loss since 1990, including the loss of 77,712 jobs between 2000 and 2010. It perennially ranks among the worst in the United States for business climate, tax burden, and cost of living. Residential electricity rates and gas prices consistently rank at or near the highest in the nation. Elected officials exacerbated these problems in 2011 by enacting the largest tax hike in state history, increasing 77 taxes and fees by $1.9 billion annually.

During this time, public sector unions gained a choke-hold grip over state government, pushing favored initiatives through the legislature like the forced unionization of personal care attendants, home day care workers, and public construction projects while rapidly expanding the size and scope of government. This included a 14% increase in the state employee ranks and a 52% rise in inflation-adjusted state spending in just the last twenty years. Meanwhile, the state employees pension fund is the third worst funded in the country, sowing the seeds for future tax increases.

Connecticut needs to go in a new direction to reverse these trends and prosper again. Connecticut’s 2012 Policy Road Map proposes 26 action items aimed at improving lives through freedom and opportunity.

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Increasing the Minimum Wage

Yankee Institute Policy Brief: Connecticut’s Minimum Wage

Overview:
According to recent news reports, State Rep. Zeke Zalaski (D-Southington) will host a press conference today in which he is expected to announce a proposal to increase the state’s minimum wage. Though well intentioned, this policy option is deeply misguided and will impose yet another obstacle to job growth in Connecticut.

The minimum wage is a “significant cause of unemployment”
“Overwhelming empirical evidence has convinced most economists that the minimum wage is a significant cause of unemployment, particularly among the unskilled.

Among the beneficiaries of the minimum wage law are the more highly skilled workers who remain employed and who can command higher wage in the absence of less-skilled competition. These more highly skilled workers tend to be represented by labor unions, which, not surprisingly, tend to support increases in the minimum wage.” (Stephen A. Landsburg, Price Theory & Applications 5e. United States. South-Western Thomson Learning, 2002. Page 407)

More than 50 years of academic research on the subject has found the disemployment effects of the minimum wage
A February 1995 summary of the issue by the Joint Economic Committee of the US Congress identified 105 studies that supported this conclusion. (Congress of the United States Joint Economic Committee, 50 Years of Research on the Minimum Wage. February 15, 1995. Accessed online on January 31, 2012 at http://www.house.gov/jec/cost-gov/regs/minimum/50years.htm)

But Connecticut’s minimum wage has been increased 32 times since 1951
Connecticut’s minimum wage was increased 30 times between 1951 and 2007 (John Moran, History of CT Minimum Wage, CT Office of Legislative Research Report. June 26, 2006. 2006-R-0410)

Public Act No. 08-92 increased the minimum wage to its current rate of $8.25 an hour. The hike was implemented in two steps, from $7.65 to $8.00 on January 1, 2009 and to $8.25 on January 1, 2010. (OLR Bill Analysis sHB5105 as amended by House “A” Accessed online on January 31, 2011 at http://cga.ct.gov/2008/BA/2008HB-05105-R010727-BA.htm)

In fact, Connecticut “has consistently enacted minimum wages that are higher than the national minimum.”
“Connecticut has consistently enacted minimums that are higher than the national minimum.” (John Moran, History of CT Minimum Wage, CT Office of Legislative Research Report. June 26, 2006. 2006-R-0410)

Since 2000, Connecticut’s minimum wage has been significantly higher than the federal minimum wage (Changes in Basic Minimum Wages in Non-Farm Employment Under State Law: Selected Years 1968 to 2012, United States Department of Labor Wage and Hour Division, Accessed online at http://www.dol.gov/whd/state/stateMinWageHis.htm)

Many other states have not followed Connecticut’s course
Connecticut is one of 18 states with a minimum wage rate higher than the federal rate. A total of 23 states have the same minimum wage rates as the federal. There are 5 states with no state-mandated minimum wage and another 4 states with minimum wage rates set lower than the federal minimum. (Minimum Wage Laws in the States – January 1, 2012, United States Department of Labor Wage and Hour Division, Accessed online at http://www.dol.gov/whd/minwage/america.htm)

Conclusion: Connecticut needs to create new jobs, not kill them
Piled on top of a $1.9 billion tax increase and the adoption of a paid sick leave mandate in 2011, further tinkering with the state’s minimum wage would be another job-killing measure just as the state economy is starting to rebound.

About the Yankee Institute
The Yankee Institute is a think tank that develops and advocates free-market and private sector solutions to public policy issues to improve lives through freedom and opportunity. Founded in 1984, the Yankee Institute is located at our new office in East Hartford, Connecticut. The Yankee Institute is nonpartisan research and educational organization and is classified by the IRS as a 501 (c) (3) non-profit.

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Connecticut’s Taxes and Fees 2012

Graph2012EAST HARTFORD – The Yankee Institute for Public Policy released today the updated version of its Taxes and Fees flyer for Fiscal Year 2010 and 2011. “Connecticut’s state government spending is dramatically outpacing population growth, median income, and the gross state product,” said Fergus Cullen, the Yankee Institute’s Executive Director. “It’s no wonder the state’s finances are a mess.”

 Download the flyer now!

 The 2012 version of the flyer includes an itemized list of Connecticut’s 378 sources of revenue ranging from the personal income tax to the alternate vessel registration license fee – whatever that is. It also includes the percent change for each revenue source compared to Fiscal Year 2010.

The flyer also highlights the recent tax increases implemented last year. State lawmakers implemented or raised 77 taxes by a total of $1.9 billion.

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77 Higher Taxes for Connecticut

HARTFORD – According to a new tally by the Yankee Institute, the State of Connecticut will impose at least 77 separate tax increases over 24 categories as part of the changes recently made by the General Assembly.

1. Raises income tax on individuals making as little as $50K and couples making at least $100K
a. Expands the number of brackets from 3 to 6
b. “Bracket Creep” shifts many taxpayers into higher brackets
c. Highest marginal rate rises from 6.5% to 6.7%
d. Phases out the 3% tax bracket for taxpayers with CT AGI of over 56,500 for individuals, $100,500 for joint filer,
e. Income tax hikes retroactive to January 1, 2011

2. Recapture Provision for high income earners effectively flattens the income tax rate on high income earners for the entire amount of their income

3. Property tax credit reduced from $500 to $300 and phased out for couples over $100,500

4. Sales and Use Tax – Increased the general sales and use tax rate from 6% to 6.35%

5. Eliminates Sales and Use Tax Exemptions for:
a. Hazardous waste removal
b. Valet parking at any airport
c. Yoga instruction at a yoga studio
d. Clothing and footwear costing less than $50
e. Non-prescription drugs and medicine
f. Cloth or fabric for non-commercial sewing
g. Property or services used in operating solid waste-to-energy facilities
h. Yarn
i. Smoking cessation products

6. Expands the Sales and Use Tax to include:
a. Motor vehicle storage
b. Packing and crating
c. Motor vehicle towing and road services
d. Intrastate transportation via limousine, community car, or van with a driver
e. Pet grooming and boarding
f. Cosmetic medical procedures
g. Manicures and pedicures
h. Spa services

7. Estate Tax – Lowers the threshold at which the estate tax applies from $3.5 million to $2 million. The estate tax has eight rates starting at 7.2% for estates between $2 million and $3.5 million up to 12% on estates over $10.1 million
8. Hotel tax – Increased from 12% to 15%
9. Luxury Goods Tax – 7% sales and use tax on motor vehicles costing more than $50,000, boats over $100,000, jewelry over $5,000, and clothing over $1000. Rate applies to the entire cost of the item, not just the amount over the threshold.
10. Rental Car Surcharge – Increased from 6.35% to 9.35% on short term car rentals
11. Alcoholic beverages tax
a. Increases excise taxes on alcoholic beverages by 20%
b. One-time floor tax on alcoholic beverages in inventory as of 7/1/2011
12. Corporate Tax Surcharge – 20% corporation tax surcharge for the 2012 and 2013 income years for companies with at least $100 million in annual gross income in those years and a tax liability that exceeds $250. This replaces a temporary 10% surcharge in law for FY2011.
13. Cigarette tax
a. Increases from $3 to $3.40 per pack
b. One-time floor tax on cigarettes in the inventory of stores as of 6/30/2011
14. Tobacco Products Tax
a. Increased on snuff tobacco from $0.55 to $1/ounce
b. Increases of 27.5% to 50% on all other tobacco products such as cigars, pipe tobacco, etc.
15. Diesel Fuels Tax
a. Increases the base tax on diesel fuel from $0.26 to $0.29 per gallon
b. Imposes a $0.03/gallon tax on diesel in inventory as of 6/30/2011
16. Real Estate Conveyance Tax
a. Increases the real estate conveyance tax rates from 0.5% to 0.75% on the first $800,000 of the sale price of a residential property
b. Increases the marginal tax on nonresidential and residential property over $800,000 from 1.00% to 1.25%
17. Electric Generation Tax – Imposes a new temporary tax of .25 of one cent per net kilowatt hour of electricity generated and uploaded into the regional bulk power grid at Connecticut facilities, except for solar, wind, or fuel cell energy
18. Admissions Tax Exemptions Eliminated – The following locations are no longer exempt from the 10% admissions tax on the ticket price:
a. Hartford Civic Center
b. New Haven Coliseum
c. New Britain Beehive Stadium
d. New Britain Stadium
e. New Britain Veterans Memorial Stadium
f. Bridgeport Harbor Yard Stadium
g. Stafford Motor Speedway
h. Lyme Rock Park
i. Thompson Speedway
j. Waterford Speedbowl
k. Tennis Foundation of Connecticut
l. William A. O’Neill Convocation Center
m. Nature’s Art
n. Connecticut Convention Center
o. Dodd Stadium
p. Arena at Harbor Yard
q. New Britain Rock Cats games
r. New Haven Ravens games
s. Waterbury Spirit games
19. Amazon tax – Requires remote sellers with no physical presence in Connecticut to collect sales taxes on their taxable sales in Connecticut
20. Cremation certificate – fee increases from $100 to $150
21. DMV fee changes
a. Increases fees on late renewals
b. Increases fees on getting a regular drivers license and CDL
c. Increases all vehicle registrations
d. Increases fees paid by violators of certain motor vehicle laws such as speeding, reckless driving, and DUI
22. Hospital Tax – establishes a new 4.6% quarterly tax on hospitals’ net patient revenue
23. Nursing Home Resident User Fee – increases fee from 5.5% to 6%
24. Handicapped Care Fee – establishes a new fee for providers of care to individuals with mental retardation. Currently 5.5% is the Connecticut maximum, but can go up to the federal maximum (currently 6%) as of Oct. 1.

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