Arthur B. Laffer Tax cuts and smart spending, the ways to move state forward
The governor’s race in Connecticut pits two fine people who represent starkly different cures for Connecticut’s economic malaise. Democratic contender Ned Lamont wants to raise tax rates to raise revenues to fund the state, while the Republican candidate, Bob Stefanowski, wants to rely on tax rate cuts and spending restraint to restore prosperity.
On a conceptual level, it’s true that sometimes tax increases do raise tax revenues and sometimes tax increases lower tax revenues. Obviously at zero tax rates, there will be no revenues. But also at 100 percent tax rates, no one will earn income and revenues will also be zero. Without evidence, anything is possible. The question is, where does the Connecticut economy find itself right now?
When it comes to states, and especially Connecticut, we have lots and lots of evidence that Connecticut is way overtaxed. According to the Tax Foundation, in 2017 Connecticut was the highest taxed state in the nation. It is the only state with both a gift and estate tax and also has high personal income, corporate income, workers compensation, and property tax rates.
Prior to the adoption of its state income tax in the early 1990s, Connecticut was arguably one of the most prosperous states in the nation.
Today, with half of all tax revenues coming from the state income tax, Connecticut has fallen on hard times.
Since fiscal year 2008, Connecticut — the state — had budget deficits equal to 4.2 percent of total spending, only exceeded by the also high-taxed states of Illinois, Massachusetts and New Jersey.
Connecticut has the fourth lowest funded public pensions of all states at 41 percent.
Its “highway conditions” were rated worst in the nation in 2015, tied with Rhode Island. Only two states have lower S&P credit ratings (Illinois and New Jersey). In fact, just this year, Connecticut’s credit rating was dropped from an A+ to an A. And it’s only going to get worse.
Hartford, the state’s once proud capital, is in a death spiral as a result of having the highest municipal property tax rate — 5.2 percent — in the state — average 2.1 percent. If ever there were a case of over-taxation, it has to be Connecticut.
Companies are leaving Connecticut in droves, as are high-income taxpayers, all to more friendly tax climates.
And when it comes to balancing budgets and funding projects, remember that a state can’t raise revenues on the backs of the unemployed or on those who have left the state.
This is why the zero income tax states way outperform Connecticut and are far more fiscally sound. Tennessee, for example, has no income tax, no death or gift tax, low property taxes, very fast growth, the highest credit rating in the nation, and a large budget surplus. Go figure! If they can do it, so can Connecticut.
Texas and Florida, with no income tax, are beating the bejabbers out of the high tax states of California, Illinois, and New York. New Hampshire, which has neither a sales tax nor an earned income tax, way outshines Vermont and Massachusetts, which over-tax everything. And no-income-tax Nevada is like a rocket ship to the moon. Since 2011, Nevada had the fastest growing population in the nation while Connecticut was the fourth slowest, beating only Vermont, Illinois and West Virginia.
As further confirmation that Connecticut’s taxes are far too high, the eleven states that adopted an income tax since 1960 — including Connecticut — are all in the bottom group of state performers.
But states aren’t the only examples of the benefits of common sense economics. Presidents from both parties — Kennedy, Reagan and Clinton — all were stewards of dynamic U.S. growth, in part because of tax cuts and spending restraint.
The bipartisan list of unsuccessful presidents includes Eisenhower, Johnson, Nixon, Ford, Carter, “W” and Obama. Government can’t tax an economy into prosperity.
Likewise, poor people sure as heck can’t spend themselves into wealth.
Bob Stefanowski is basing his whole campaign on reversing the economic policies of Dannel Malloy and his predecessors by exercising spending restraint and lowering tax rates to create jobs, output, and employment, while Ned Lamont is carrying on the economic policies of Malloy and is proposing higher tax rates. The choice couldn’t be clearer.
Among his numerous credentials, Dr. Laffer was a member of President Reagan’s Economic Policy Advisory Board for both of his two terms (1981-1989). A Yale graduate, one of his earliest successes in shaping public policy was his involvement in Proposition 13, the groundbreaking California initiative that drastically cut property taxes in the state in 1978.