Gov. Ned Lamont’s first campaign ad offers an upbeat view of Connecticut’s finances that accurately portrays the state’s rapid turn from scary deficits to fat surpluses, yet it leaves a misimpression that no taxes have increased.
“For years, politicians couldn’t get it done — balance the budget without raising taxes,” Lamont says in the opening of the 30-second ad. “As a businessman, I knew we could prove them wrong.”
Lamont did succeed in not raising the tax rates most noticed by voters — the income tax and sales tax. And the Democratic governor has faced down progressives in his own party that prefer to see higher taxes on the wealthy.
But his first two-year budget included increased General Fund taxes and fees by $220 million the first year and $270 million the second, plus it added even more revenue by canceling or postponing scheduled tax cuts.
The budget added a 1% surcharge on prepared meals, broadened what is subject to the 6.35% sales tax and reduced a tax credit for small and mid-sized businesses.
There also was a smaller item that annoyed consumers and produced ample fodder for talk radio: a 10-cent fee on plastic bags intended to encourage shoppers to shift to the reusable bags that have become ubiquitous.
Those are the items that generally do not provoke a debate over what they actually mean. But how should tax cuts that were postponed or canceled go on the governor’s record?
The legislature has a habit of scheduling tax cuts to take effect in the future when they presumably will become affordable — then canceling or postponing them when they are deemed unaffordable.
Postponed or canceled tax relief included benefits promised to retired teachers, property tax owners without dependents, and college graduates with degrees in science, technology, engineering or math.
A temporary surcharge on corporate income has become something of a joke. Once again, a promised expiration date came and went.
The biggest canceled tax cut was a $516 million reduction in the hospital tax that even many in the hospital industry were skeptical of ever seeing. The canceled cut was partly offset by supplemental payments to the industry.
Still, the net revenue increase to the state from the hospitals was $417 million a year.
All told, the cancelation or postponement of previously approved tax cuts save the state more than $620 million in each of the first two fiscal years of the Lamont administration.
A law passed last year would impose a highway use tax on heavy trucks, beginning in January 2023. It would cost between 2.5 cents and 17.5 cents per mile, depending on weight.
The governor’s campaign messaging is the work of SKDKnickerbocker, the Democratic consulting powerhouse whose clients include President Joe Biden. Their work for Lamont’s successful campaign in 2018 is a case study on the firm’s web site.
The rest of Lamont’s ad is based in fact, though it offers a conclusion that invites a certain debate between the governor and his presumptive Republican challenger, Bob Stefanowski.
“We turned a massive deficit into a $3 billion surplus while investing in schools, health care and public safety. And now we are cutting your car tax and gas tax,” Lamont says. “A balanced budget, lower taxes. Our state is strong and getting stronger.”
His claim of a deficit turning into a surplus is accurate, his proposed budget includes a cap on municipal car taxes, and he recently signed into law a three-month suspension of the state’s 25-cent-a-gallon gas tax.
Is the state strong and getting stronger?
Lamont and Stefanowski will hash that out from now until Nov. 8.
With a 2.5% increase in gross domestic product in the third quarter of 2021, Connecticut slightly outpaced the national growth of 2.3%. Tax revenues are strong, and the state is expecting another record surplus.
Unemployment dropped to 4.9% in February, according to the monthly report issued last week by the state Department of Labor. Connecticut has recovered 80.5% of the 289,400 jobs lost two years ago in the COVID-19 lockdown.
On the debit side, Connecticut still has deeply troubling structural fiscal problems, primarily from an unfunded pension liability that typically ranks among the worst in the U.S. on a per-capita basis.
Lamont’s first budget was balanced in part by restructuring contributions into two state pension funds, cutting expenses over the next two fiscal years but shifting billions of dollars in contributions and interest onto taxpayers after 2032.
Surpluses since then have allowed him to pay down the pension debt, as required by law.
Aside from inflation, Lamont has been far luckier than his predecessor, Gov. Dannel P. Malloy. on economic issues that often drive gubernatorial elections.
Lamont came to office with a $1.2 billion cushion in the rainy day fund. Malloy began with an empty reserve, $1 billion in an operating debt left by Gov. M. Jodi Rell and the 2010 legislature and 9% unemployment.
In his first year, Malloy and the legislature enacted more than $1.8 billion in annual tax increases, one of the largest revenue bumps in state history. His luck stayed lousy, as the effects of the Great Recession of 2008 and 2009 lingered.
Actual tax receipts didn’t meet nonpartisan analysts’ projections during five of Malloy’s first six years in office. According to records from the state comptroller’s office. it was one of the slowest recoveries in state history.