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Yankee Institute Reacts to Governor Rell's 'Tax and Spend' Budget
Yankee Institute Reacts to Governor Rell's 'Tax and Spend' Budget
Hartford, February 9, 2005 -- In response to Governor Rell's proposed budget for the 2006 and 2007 fiscal years, D. Dowd Muska, the Yankee Institute's Philip Gressel Fellow for Tax and Budget Policy, offered the following statement:
Unfortunately, the governor's budget perpetuates Connecticut's decades-long policy of both higher spending and higher taxes. This trend has devastated the state's economy, driven businesses away and cut the take-home pay of Connecticut residents who have not yet fled to lower-tax jurisdictions.
While the governor's resistance to calls for a higher income tax is admirable, her willingness to embrace other "revenue enhancements" is disturbing. The combined local, state, and federal tax burden for the citizens of Connecticut is already the highest in the nation. In the last three years alone, the state has raised taxes by $900 million. When will the tax hikes end?
Instead of tweaking the corporation-tax surcharge, as her plan proposes, the governor should move to eliminate the corporation tax altogether. It generates very little revenue, but imposes compliance and avoidance costs. The proposed elimination of the research and development tax credit is sound, and other unfair credits and exemptions in the tax code should also be removed.
Connecticut's gasoline tax is already rather high, and raising it will not address the fundamental problem the state's drivers face. A disproportionate share of the Connecticut Department of Transportation's budget is devoted to "mass transit," an option chosen by only 4 percent of the state's commuters. Connecticut does not need more revenue for transportation spending -- it needs to spend the revenue it already receives in better ways. In addition to her sound desire to improve the capacity of the state's highways, the governor should embrace congestion pricing and other fee-based measures to fix Connecticut's traffic woes. (One welcome feature of the governor's transportation agenda is that the proposed New Haven-Springfield commuter-rail line is not funded.)
The proposed tax hike on cigarettes is unsound -- and unfair. Since smokers typically have lower household incomes than non-smokers, the tax increase is regressive. Most ominously, it raises the specter of escalating violence (and law-enforcement costs) due to the smuggling that inevitably results from cigarette-tax hikes. Raising Connecticut's already heavy taxes on alcohol is regressive as well, and will encourage residents to look for cheaper liquor in other states.
Nevada, North Dakota, Texas, Virginia, and Wyoming all have substantially lower tax burdens than Connecticut, yet are currently enjoying budget surpluses. Clearly, high taxes are not the means to ensure a reliable revenue stream.
On the spending side, the budget's increases of 3.9 percent for each year of the biennium are unwise and unwarranted. In inflation-adjusted, per capita terms, spending in Connecticut has ballooned by a factor of four in the last three decades. More spending isn't the answer -- it's time to look at substantial cuts in expenditures.
Many state agencies and programs belong on the chopping block. Corporate welfare should be the first to go. The governor's intention to "invest" an additional $20 million in the risky biotech industry, which has seen the loss of $60 billion in private investment worldwide since 1990, is indefensible. The Connecticut Development Authority and the Department of Community and Economic Development should be completely defunded.
Many state assets, including quasi-public agencies, should be sold and the proceeds used to offset deficits, replenish the "Rainy Day Fund," and lighten Connecticut's tax load.
Failed and planned future "redevelopment" projects, political pork, and subsidies to the arts should also be eliminated.
The governor's education initiatives are disappointing. More computers, preschool programs, and attempts to fix "racial isolation" are trendy goals that will be welcomed by the government-school establishment. But these measures are not likely to improve achievement. Proven, market-oriented reforms of the way the state and municipalities educate children would save taxpayer dollars and benefit students as well. But neither opportunity scholarships nor tuition tax credits are part of the governor's education plan.
The governor's bonding proposals are excessive. Adding more than $2 billion to the state's bonded indebtedness at a time when Connecticut already suffers from the highest per capita debt in the nation is not fiscally sound. The governor should declare a moratorium on all state bonding projects not directly needed for public health and safety.
Connecticut has gone down the path of fiscal recklessness for decades. Sadly, Governor Rell's budget is one more step in the wrong direction.
D. Dowd Muska is the Yankee Institute's Philip Gressel Fellow for Tax and Budget Policy.
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The Yankee Institute for Public Policy, Inc. is a nonpartisan educational and research organization founded more than two decades ago. Today, the Yankee Institute's mission is to "promote economic opportunity through lower taxes and new ideas for better government in Connecticut." The Yankee Institute for Public Policy, Inc. is classified by the IRS as a 501 (c) (3) public charity. Contributions are deductible to the extent allowed by law.
