Lamont’s tax hikes won’t solve CT’s fiscal problems

Photo by Marlith

Overburdened taxpayers anxiously awaited Gov. Ned Lamont’s first budget proposal recently, hoping to see meaningful tax relief for job creators and middle-class families. Much like his predecessor, Gov. Lamont promised not to raise taxes; however, his budget will leave taxpayers gravely disappointed.  Tax hikes on the most vulnerable, increased borrowing, and a kick-the-can approach to state finances is the same path that has led Connecticut to its current precarious situation, and is certainly the last thing the Constitution State needs now.

The central theme of the $43.1 billion budget is recovery through tax changes — or in other words, the same failed reliance on tax hikes. Due to ballooning pension obligations and economically damaging tax and spend policies, Lamont is looking for creative ways to plug a $3.7 billion budget deficit. This is a critical year for Connecticut, as Hartford’s anti-business agenda has resulted in two consecutive years of GDP contraction, and shrunk the labor force by tens of thousands. Equally troubling, five income tax hikes in 15 years have forced thousands to flee – mainly to other states with more favorable tax climates.

How many more years of stagnation will elected officials need to witness before they realize Connecticut needs real tax reform, not more tax increases?

Probably the most egregious scheme in Lamont’s budget is to promote what he calls a “healthier future” for Nutmeggers through a $163 million, first-in-the-nation statewide tax on sugary beverages. Years of research finds such punitive, regressive taxes are not the budgetary windfall proponents claim to be, nor do they improve health outcomes. In fact, evidence shows sugary beverage taxes devastate small businesses and hurt middle class workers. In Philadelphia, their tax cost the city thousands of jobs, many of which were union-held, $80 million in lost GDP, and $54 million less labor income, according to an Oxford University study. In Chicago, a similar tax threatened to eliminate 6,100 lost jobs, $321 million in lost wages, and $1.3 billion in lost economic activity.

Sugary beverage taxes are also extremely unpopular with the people who live in jurisdictions where these taxes are in place. In Chicago, voters initially were supportive of the tax, but after feeling the adverse economic effects, 87 percent of voters were united in calling for its repeal. After only 71 days, city lawmakers voted to roll back their tax. It’s a similar story in Philadelphia, where 70 percent of people now oppose the tax.

Even as public officials in these cities — and now, Gov. Lamont — kept portraying themselves as guardians of the least fortunate citizens, beverage tax proposals fall hardest on low-income residents. When it comes to spending restraint, politicians warn against “balancing the budget on the backs of the poor.” But when it comes to tax hikes, apparently, anything goes.

One of the most important principles for sound tax policy is that taxes be neutral, rather than picking winners and losers. Public officials will often tax items arbitrarily determined as “bad” in an attempt to transition consumers to different products. So it is with Lamont’s proposal to “level the playing field” and “bring electronic cigarettes in parity with the taxes placed on cigarettes.”

But this completely misses the mark. Vapor products contain nicotine without the toxic chemicals found in traditional tobacco products. Some estimates indicate vapor products are 95 percent less harmful, and are an effective bridge for cigarette smokers transitioning away from combustible cigarettes. With this change raising $10 million annually, the clear motive for this to fatten state coffers, not to achieve better health outcomes. Ironically, taxpayers may be deprived of savings over the long term: if tobacco users don’t switch to non-combustible products, government health programs may never see lower costs for smoking-related illnesses in years ahead.