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Mr. Weicker’s Wild Ride October 2, 2008 It’s a bitter coincidence that word of Connecticut’s mounting budget deficits arrives so close to the anniversary of the state’s biggest protest rally. On October 5, 1991, tens of thousands of citizens descended on Hartford to demand the repeal of the new tax on personal income. The folks who turned out to berate legislators and Governor Lowell Weicker had an obvious motivation. Their paychecks were now lighter, at a time when the state was facing one of the worst economic crises in its 360-year history. (Last year we learned that Weicker, who vetoed several no-income-tax budgets that summer before winning approval of the levy, was described as a “pompous, no good fathead” by Ronald Reagan in a diary entry. The Gipper had a knack for getting to the essence of people.) But aside from making its workers poorer, Connecticut’s tax on personal income contains a flaw that wasn’t considered then, and remains little-discussed today: it generates wildly unpredictable revenue. Income-tax proponents believed that because Connecticut’s pre-1991 fiscal system was based on taxing consumption, it was outdated. John Rathgeber, a dim-witted lobbyist for the Connecticut Business & Industry Association (today he’s the organization’s president and chief executive officer), claimed an income tax would provide “greater stability as far as the revenue structure of the state of Connecticut” and thus “end the cycle of budget deficits and increased taxation which has dominated the legislative process over the last several years.” Far-left solon Miles Rapaport called relying on consumption taxes a “fiscal throwback” that “made it impossible to predict or plan long term.” (Many still agree -- in a 2004 book, Robert Satter, another former state pol, claimed the income tax offered “a sounder revenue base.”) The notion that an income tax is fiscally “responsible” was thoroughly debunked at the start of the century, when corporate scandals, a serious stock-market tumble, and the 9/11 atrocities sent revenue from the tax plummeting. In a $600 million withdrawal, lawmakers and Governor John Rowland emptied the state’s budget reserve, and still “needed” to hike the income tax’s rate by 11.1 percent, raise takes on corporations, diesel fuel, and cigarettes, and float “economic recovery notes.” It looks like the Connecticut treasury is headed for another dramatic dropoff. The current fiscal year’s predicted deficit might be as high as $800 million, according to the state’s comptroller. Deficits for the next few years could run into the billions. And as was the case just a few years ago, Connecticut’s dependence on the income tax -- it generates about 45 percent of the state’s general fund -- is the prime culprit in today’s fiscal friction. A 2006 report by a legislative committee concluded that the state is “heavily reliant on top income filers for paying the bulk of the tax. Thus, Connecticut’s income tax is more volatile than most states’ income taxes due to the characteristics of our distribution of income and filers compared to other states.” Changes in revenue, researchers noted, “are much more dramatic -- the increases higher and the declines deeper.” With a strong concentration of workers in financial services, the Nutmeg State’s fiscal fortunes rise and fall with the health of the investment industry. When bulls prevail, the loot pours in. When bears rule, watch out. What this means for the typical Connecticut taxpayer is that during the fat years, politicians spend like a Third World petro-billionaire at a Vegas strip club. Lean years don’t see budgets balanced by cutting waste, rooting out mismanagement, privatizing non-core functions, and competitively bidding key public-sector services. No, tax hikes and borrowing are the preferred tools. This continual ratcheting of the spend-and-tax-and-borrow cycle is destroying Connecticut’s standard of living, and neither political party is willing to do anything about it. On October 5, 1991, protesters didn’t carry “INCOME TAX = UNRELIABLE REVENUE STREAM” signs. They didn’t chant “Hey hey, ho ho, a tax that features an annual rate of revenue growth with a disturbingly high standard deviation has got to go!” Viscerally, they knew an income tax was a bad idea -- that despite the claims by “experts,” a glorious new era of responsible fiscal policy had not dawned in Connecticut. The passage of time has shown the peasants with pitchforks to be right in ways they hadn’t imagined. Not only did the income tax enrich Connecticut’s politician/public-employee establishment at the expense of folks working in the productive sector, it trapped the state’s budget in a pernicious boom-and-bust bind. All indications suggest that we’ve entered another bust phase. Get ready for higher taxes. D. Dowd Muska is a writer, commentator and lecturer. His website is www.dowdmuska.com. # # # # #
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