Boughton: Income tax phase-out is one piece of 10-year plan

Danbury — As he explores seeking the Republican nomination for governor in 2018, Mayor Mark Boughton is standing out in a crowded field by testing a message not seriously proffered in two decades: a call for elimination of the state’s income tax.

It’s his third time looking at a run for Connecticut’s top office — and his first as a candidate who suggests the state could live without the current source of nearly half its revenue, $9 billion in a state that spends $20 billion on state government, public assistance and local aid.

Boughton is proposing a gradual phase-out of the income tax over several years as one component of a 10-year “pro-growth” strategy that he says he will unveil piecemeal over the next four to six months. He doesn’t come close to explaining what would replace it, but suggests it’s time for a new fiscal debate.

“Connecticut is the Land of Steady Habits,” Boughton said. “Well, we’ve seen where our steady habits have gotten us – billions of dollars of deficits, billions of dollars of unfunded liabilities and Aetna and GE leaving the state and many, many more to follow.”

“The fact of the matter is, Connecticut was successful when we didn’t have an income tax,” he said.

Boughton has offered some rough ideas on the other components he believes could be incorporated into the full plan, including deep government spending cuts and significant labor savings. He offers no specifics on what new revenue he finds preferable to a tax on income.

“If it’s part of a comprehensive approach, you may have to flatten some taxes,” Boughton told the CT Mirror. “Maybe some of the strategies we used prior to the income tax, we may have to go back to some of those things.”

Connecticut had an income tax long before the broad-based tax on wages was adopted in 1991. It applied to capital gains, interest and dividends, just not wages. The tax was 7 percent on capital gains and as much as 14 percent on interest and dividends. The sales tax was 8 percent.

Would Boughton return to those rates?

His campaign says he has not made any decisions on taxes at this point beyond elimination of the income tax.

Boughton, the eight-term Republican mayor of Connecticut’s fastest growing city, said he is bringing “innovative and creative ideas” to the table – the same process that he says led to his success in growing business and industry in Danbury. He is running for a ninth term this year while exploring a bid for governor.

Before his election as Danbury’s mayor in 2001, he won two terms in the state House of Representatives, which he says gives him the combination of executive and legislative experience.

After failing to raise enough funds to qualify for public financing in 2014, he declined to pursue the GOP gubernatorial nomination in a primary, despite winning enough support at the state convention to make it onto the ballot.

He explored a run for governor in 2010, but settled for becoming the nominee for lieutenant governor.

Boughton said he began exploring another campaign for governor as early as he did this year to get a head start on fundraising. He remains near the front of the pack with about $162,000 raised through the first two quarters of 2017, but other Republicans – both declared and exploring – made significant gains on him in the second quarter.

Shelton Mayor Mark Lauretti, a declared candidate, has raised $145,000 since April. Rep. Prasad Srinivasan, R-Glastonbury, also a declared candidate, has topped $200,000.

Boughton said if he reaches his target of qualifying for public financing by January, he will formally declare his candidacy.

A controversial proposal

Boughton’s critics have decried elimination of the income tax as politically and economically unrealistic given the state’s budgetary challenges. The last major party nominee to call for the repeal of the income tax was John Rowland in 1994.

A prolific tweeter, Boughton responded to one critic who asked if more details about the income tax repeal would be made available.

“Sure. When I am actually a candidate. This is a vision,” he replied.

Boughton said those asking for more details now should realize he does not have the staff of the governor’s budget office working for his campaign. He said the pieces will be released as the details are worked out.

The proposal to phase out the income tax, which he made last month, comes amid a years-long budget squeeze, and state officials and lawmakers are now grappling with multibillion-dollar annual deficits.

Lawmakers have yet to agree to a budget for the fiscal year that began July 1.

Boughton said state leaders are muddled because they are stuck in an “old way” of thinking – that the baseline should be $20 billion in spending. He said both the House and Senate Republican budget proposals fail to break away from that mindset, and don’t go far enough.

Still, Boughton said he knows his plan is “counterintuitive.” A gradual phaseout rather than an outright elimination, he said, gives him the time to shrink government and win major labor concessions to keep the state budget in balance.

The current deadlock, of course, shows neither is easy.

He said he is counting on being able to achieve significant labor savings when contracts for state employee union benefits expire in 2022. That may not be possible, however, if union members and legislators agree to a concessions deal that would extend the benefits contacts through 2027. Voting is ongoing and results are expected Monday.

He said ratification of the deal would set back his timetable for phasing out the income tax.

Boughton also said he plans to shrink state agencies by eliminating high-paid bureaucrats, which he said include deputy commissioners and spokesmen.

He envisions making up the remainder of the difference through increased revenue from the sales tax as state residents have more take-home pay to spend. New businesses relocating to Connecticut would bring more economic vitality, he says.

Boughton said the nine states without an income tax have experienced the kind of economic growth Connecticut needs.

“For anybody that argues that it’s a stunt, I’d say I would point to the other nine states that are doing exceptionally well, or just ask them to talk to any of your friends, and you tell me where they say they’re going to retire to – because it’s not Connecticut,” he said.

Short-term pain, potential roadblocks

But Boughton said he understands that with smaller, leaner government comes pain. Phasing out the income tax would make the task of building a balanced budget more onerous each year. And programs that some of the state’s neediest rely on may not see their current funding levels maintained.

He said under his plan, perhaps more than ever, the state would need to prioritize its spending on public education, public safety and programs that provide people “an opportunity to pull themselves out of poverty.”

And allocating money for even the most basic services could grow more difficult if the federal government adopts policies that would mean billions of dollars less for Connecticut in coming years.

The Republican effort to repeal and replace the Affordable Act Care could prove to be one of the costliest blows to the state if it passes. Under the first draft of the repeal-and-replace plan released by Republican leaders in the U.S. Senate, the state would be hit with a $2.9 billion annual cut to Medicaid funding by 2026, Gov. Dannel P. Malloy’s office estimates.

That’s why Boughton says he does not support the legislation in its current form, though he made clear he does not believe the Affordable Care Act is working.

“I think there is definitely an argument among states that have expanded their Medicaid, that to go back from that would be catastrophic,” he said. “Ohio has that problem. Some other places have that problem. And Ohio has a Republican governor. We’ll have to see how all that plays out. But whatever comes out of that, we’ll certainly tailor our program to that.”

Even if these pitfalls are avoided, Boughton has no illusions that enacting his strategy would be easy.

“The first four years will be very difficult implementing some of things that we’ve talked about,” Boughton said. “We’ll have our share of battles, because it is going to require some pain. But with pain, we bring real tax relief and growth to our economy.”