Dan Haar: Sweeping fiscal and economic plan balances pain, to a point
Updated 9:07 pm, Thursday, March 1, 2018
The unofficial slogan of the commission working this winter to right the state’s ailing economy has always been “go big or go home.” On Thursday, the group, dominated by business executives, made that a reality with recommendations more sweeping than anything since the launch of the state income tax in 1991.
The plan would lower income tax rates at the top and even more for working families; raise the sales tax and eliminate exemptions; raise the gasoline tax and move toward highway tolls; cut spending by $1 billion a year, which could amount to 10 percent of the portion of the state budget that’s adjustable; and impose a 0.8 percent payroll tax on all but the smallest businesses.
It would also raise the minimum wage to $15 an hour by 2022, tighten union bargaining rules and give cities and towns the right to raise a sales tax of 0.5 percent, but only if they came together to share services.
Now the question is whether these and dozens of other suggested measures by the Commission on Fiscal Sustainability and Economic Growth can pass through a legislature that’s marked by factional politics and so gridlocked that this year’s budget was finished five months after the due date.
“There is something in it for everyone to love and everyone not to love,” said commission member James Loree, the Stanley Black & Decker CEO who headed economic reporting.
As the recommendations move toward hearings and votes — which, under the 2017 law that created the commission, they must — we need to ask ourselves: How’s it working out so far, without dramatic change?
The answer, contained in the panel’s 68-page report, is clear. To give one data point: Connecticut’s economy shrank by 8 percent from 2007 to 2016, compared with 11 percent growth for the United States as a whole. Massachusetts grew by 13 percent in that time.
“Connecticut’s platform is burning,” the report says. “The situation is at a crisis point. … The time for half-measures is over.”
In fact, we’re past the crisis point. We know the problem well: People are leaving Connecticut, and even after filling a $3 billion budget gap last year, the state faces another rising shortfall that would reach $3 billion by 2022.
Why? The left says the rich aren’t paying their fair share. Taxpayer advocates say the opposite. Business confidence is mixed. The commission’s report said protracted fights over shortfalls lead people to lose faith in the state.
One thing that’s very obvious is Connecticut doesn’t have a magnet city and the commission calls for many measures to address that. But making a difference in New Haven, our best bet, along with Hartford and Bridgeport would cost hundreds of millions of dollars.
Reactions Thursday ranged from anger by labor groups to praise from the Connecticut Conference of Municipalities to a promise to study the suggestions by just about everyone in the state Capitol — Democrats, Republicans and Gov. Dannel P. Malloy.
“It’s more balanced than people thought it would be,” said Rep. Jason Rojas, D-East Hartford, co-chairman of the tax-writing finance committee.
Unions didn’t see it that way, as they panned the report even before the 14-member commission voted unanimously to send it to the General Assembly. “This is Kansas 2.0,” said Lori Pelletier, president of the state AFL-CIO, referring to that state’s failed effort to raise revenues by cutting taxes and spending.
“We’re continuing to cut taxes for the wealthy, we’re shifting the burden to consumers,” Pelletier said before deriding the fact that the report featured a photo of a yacht club on the executive summary page.
The commission showed charts claiming the package would boost economic growth and sharply reduce, but not eliminate, shortfalls in future years. Co-chairmen Robert Patricelli, recently retired from Women’s Health USA, which he founded, and James Smith, recently retired as CEO of the parent of Webster Bank, which his father founded in 1935, insisted the suggestions hang together as a whole, not piecemeal, if they are to work as intended.
“This is not a Chinese menu,” Patricelli said.
Both donated $100,000 from foundations they control to help fund the commission’s work, as did Yale University, through a nonprofit entity that Patricelli founded — an entity that could continue now that the commission’s work is done.
How a vote in the legislature will happen, through one massive bill or a series of reform bills, remains unclear. But there’s no sign of political consensus, especially as the November elections approach.
“Raising the state sales tax and gas tax while eliminating the estate and gift tax, and lowering income taxes most significantly for the wealthy, are not the bold reforms our state needs to help grow our economy,” said Donald Williams, executive director of the Connecticut Education Association and a former state Senate president pro-tem.
Other union leaders said collective bargaining is not a problem, as the state benefits tier that’s behind the vast majority of the pension liability was set before collective bargaining began. They have a point that union-bashing has gone too far, and they’ll need to make that economic case in hearings.
Still, the commision’s plan might be more balanced than meets the eye. Patricelli, in response to Pelletier, pointed out that cuts in the state income tax are proportionately deeper for families making less than $50,000 than for rich households. And the fact is that the exit of wealthier households — often to early retirement at a time when those people might otherwise stick ariound — is an economic problem for the state.
Joe Brennan, president of the Connecticut Business and Industry Association, said the group and others must study the impact of the measures on affordability competitiveness as residents continue to leave the state. “Reducing the income tax and eliminating the estate and gift tax will go a long way toward stemming that flow. But we are concerned...about the business tax increases.”
One aspect of the plan that didn’t generate much discussion Thursday is the transfer of assets, including lottery revenues, to state pension funds. An accounting ploy, perhaps, but it’s one that could save hundreds of millions of dollars in financing costs for unfunded pension liabilities.
Overall, the plan would not raise or lower taxes though, of course, some families would gain and others would lose.
As for the danger of the state not acting, Smith said, “We are so close to that tipping point.”
Cindi Bigelow, a commission member and CEO of Bigelow Tea in Fairfield, said factions need to come together as a model for the rest of the divided United States. “If we do not work together,” Bigelow said, “our little beautiful state is in serious, serious trouble.”
They’re both wrong. We’re past the tipping point and we’re already in serious trouble. We need radical action, and this report is the only road map we have right now.