Will Connecticut serve as a cautionary tale?

Patrick Gleason Director of State Affairs, Americans for Tax Reform
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There are only six governors who think it would be prudent to raise taxes at this time. Unfortunately for Connecticut taxpayers, despite being home to the costliest state government and third-highest state and local income tax burdens in the country, first-term Gov. Dannel Malloy (D) is one of those six.

Gov. Malloy is hoping to get final approval from the legislature this week for his FY 2012 budget, which entails over two dozen separate tax increases according to the Hartford-based Yankee Institute — hitting everything from individual and corporate income, to property and gas at a time when averages prices are approaching $5 a gallon. Malloy’s budget even includes an unconstitutional tax on online purchases.

Malloy’s budget is a grab bag of bad ideas that stands in stark contrast to the spending plan recently signed into law by his Democratic counterpart in neighboring New York, Gov. Andrew Cuomo. Cuomo, who in March closed a sizable deficit for the coming fiscal year without raising taxes, demonstrates that even Democratic governors recognize that higher taxes will only hamstring the tepid economic recovery.

Like New Jersey Gov. Chris Christie, Cuomo has shown that fiscal restraint and opposition to higher taxes is not just good policy, it’s also good politics. In fact, recent polling has Gov. Cuomo’s approval rating at 77% and Gov. Christie continues to have higher approval numbers in blue New Jersey than President Obama.

Malloy apparently didn’t get the memo. His budget, which is slated for floor votes this week, includes nearly $2 billion in higher taxes on a host of goods and services. It is also a great example of how raising taxes is what politicians do when they prefer not to govern. Amazingly, despite erroneous claims of massive cuts, Gov. Malloy’s allegedly “austere” budget actually increases spending from current levels by 8% in the coming fiscal year. Only in government could a spending increase be characterized as a cut with a straight face.

The truth is that Connecticut, more so than perhaps any other state in the union, has a spending problem and not a revenue problem. And while that’s a phrase commonly heard from conservatives, it happens to be backed up by the numbers. In fact, had the state lived within its means and kept spending in line with population and inflation over the last decade, the state would have spent $20 billion less than it actually did for that duration — money that could have been put in a rainy day fund or, ideally, returned to taxpayers.

While President Obama and Congressional Democrats have owned up to the fact that the U.S. corporate tax rate — the highest in the developed world — must be reduced in order to increase competitiveness and foster job creation, Gov. Malloy has not shared in this wisdom.

The pending Connecticut budget entails a 100 percent hike in the state’s corporate tax surcharge. Raising taxes on “big, bad corporations” may win cheers among Malloy’s liberal base, but it betrays ignorance as to who actually pays corporate taxes. There is now an emerging consensus among economists that higher corporate taxes are passed along to ordinary Americans in the form of reduced wages, capital gains, and dividends. The fact is that corporations don’t pay taxes, people do.

One of the most ill-advised provisions in Gov. Malloy’s budget is the new tax on cosmetic surgical procedures that are deemed to be elective in nature. Such a cosmetic tax is a discriminatory levy that disproportionately affects women and is a dubious and inefficient source of revenue that amounts to nothing more than a budget gimmick.

According to a recent report on New Jersey’s cosmetic tax, the first and only state cosmetic tax in the nation, “in 2008 women’s percentage of those procedures equaled 91.58 percent. Under the U.S. Constitution, citizens are entitled to equal protection of the laws. State and federal statutory laws also prohibit discrimination. Because females have more plastic surgery than males, the tax may seem to disadvantage a suspect classification.”

Not only is a cosmetic tax primarily borne by women, it’s highly inefficient and costly to administer. The New Jersey lawmaker who sponsored the cosmetic tax in 2004 ended up leading the effort to repeal it just two years later, pointing to studies that found that for every dollar in tax collected by the Garden State’s cosmetic tax, the state actually lost $3.39 in revenue.

It is Gov. Malloy’s dogged insistence on such misguided, anti-growth measures that has many employers concluding that Malloy’s first budget is the marketing equivalent of a “closed for business” sign on the Nutmeg State border. Gov. Cuomo remarked early this year that the Empire State had no future as the tax capital of the world. The same can be said of Connecticut. The good news for taxpayers across America is that not every state is a total failure; some just serve as bad examples. Unfortunately for Connecticut taxpayers, their freshman governor remains hell-bent on serving as a cautionary tale.

Patrick Gleason is director of state affairs at Americans for Tax Reform

Patrick Gleason