Some bad news for Connecticut taxpayers
Well, there's some good news for Connecticut taxpayers. However, there's some bad news, too ... and some more bad news.
First, the good news: after years of red ink, the state has posted consecutive budget surpluses totaling $11 billion since 2017, according to a story published recently by The Connecticut Mirror's Keith Phaneuf, a former Day staff writer, who knows the state's finances better than anyone.
"In the last three years, the windfalls matched or exceeded 8.5% of the General Fund," Phaneuf wrote, noting that in the two previous decades no previous surplus had been more than 3.3%. Connecticut's $4.3 billion surplus two years ago amounted to 20.8%, larger even than the second- and third-largest surpluses ever recorded. Wow!
Now, however, Connecticut's gravy train is nearing the end of the line, and that's bad news in a state where governors from three different political parties along with state legislators haven't exactly been disciplined in their spending over the past three decades. Since 1991 when the state income tax was enacted, Connecticut's budget has more than tripled. Proponents of the wage tax promised when they enacted it back then that the extra revenue generated by the income tax wouldn't be a license to spend. That promise has earned them a Pinocchio Award.
In fairness, the state's budget crisis back in those days was brought on primarily by recession and a disastrous collapse of the housing market here. Deficits then were so severe that other taxes would have been raised to unacceptable levels had the wage tax not been enacted by then-Gov. Lowell P. Weicker Jr., of the newly formed Connecticut Party and the Democratic-controlled legislature. Income tax supporters warned the state's 7.5-percent sales tax at the time would have to be raised into double digits, worsening the downward fiscal spiral.
Then-candidate Weicker, who died earlier this year, said during the 1990 gubernatorial campaign that enacting an income tax in Connecticut's fiscal condition would be like pouring gasoline on a fire. He never actually said flat-out that he wouldn't propose an income tax, but the gas-on-fire remark inferred as much, earning him a Pinocchio Award, too.
Republican John Rowland, who lost to Weicker in 1990, ran successfully in 1994 on a promise to repeal the income tax. It never happened, which earned Rowland a Pinocchio Award as well. However, with all that extra money to spread around, Rowland smartly distributed lots of it to Connecticut's cities, enhancing his support in traditionally Democratic strongholds and winning re-election in 1992 and 2002 landslides.
Connecticut's recent budget surpluses have been part of the reason for Democratic Gov. Ned Lamont's high approval ratings and his easy re-election victory last year. The surpluses between 2018-2023 have been driven largely by gains in the stock market and $2.8 billion in Covid relief money from the federal American Rescue Plan Act.
To their credit, Lamont and the Democratic-controlled legislature didn't go on a wild spending spree with the extra money. Most of the surpluses have been used to pay down the state's still-underfunded pension fund and build up its Rainy Day Fund to record levels.
OK, now for the bad news ... and the additional bad news.
First, the stock market has cooled off considerably, which has led to a softening of Connecticut's tax revenue. The reinforced Rainy Day Fund will protect the state from budget crises like those from earlier in the 2000s and the late 1980s, at least for the time being.
The second gut-punch to Connecticut taxpayers is that we're already paying among the highest taxes of any state in the country. You probably suspected as much, but this confirms it.
Connecticut ranks 47th in the 2024 State Business Tax Climate Index compiled by The Tax Foundation and distributed recently by the Yankee Institute. Only three states — New Jersey, New York, and California — have higher taxes. Remember how we used to joke about "Taxachusetts?“ Well, Connecticut taxpayers bear a heavier tax burden than our neighbors to the north, whose state is ranked No. 46.
Maryland at No. 45, Minnesota, Vermont, Hawaii and Rhode Island round out the bottom 10.
Connecticut's property tax is ranked 50th nationally, making it the nation's most onerous. And the individual income tax of between 3-6.99 percent ranks No. 46. Other rankings that go into The Tax Foundation's ranking formula include corporate tax (Connecticut's ranks 30th); sales tax (No. 23 at 6.35 percent); and the unemployment insurance tax (26th).
"The states in the bottom 10 tend to have a number of afflictions in common, nonneutral taxes with comparatively high rates," The Tax Foundation's report states.
In case you're wondering what states have the lowest taxes, the Top 10 is comprised, 1-10, of Wyoming, South Dakota, Alaska, Florida, Montana, New Hampshire, Nevada, Utah, North Carolina and Indiana. People in the northeast don't just move to Florida for the warm weather.
Given Connecticut's already-high tax rate and this one-two punch of bad fiscal news, Lamont and the General Assembly would do well to begin tightening the state's purse strings in the coming legislative session, which begins in January.
Back during the budget crisis of the late 1980s, the late state Rep. Janet Polinsky, D-Waterford, was co-chair of the powerful Appropriations Committee. Not fully versed in state budget cycles then as a young reporter, I asked if times like those made her job more difficult.
"Not really," she said in her gravelly voice. "When you're flush with money, everybody thinks they should get some of it. Some do and some don't, and the ones who don't get it are mad at you. On the other hand, though, when there's no money — like now —it's easier. You just say no to everyone."
Wouldn't that be novel?
Bill Stanley, a former reporter at The Day, is a retired vice president of Lawrence + Memorial Hospital.
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