Republican gubernatorial candidate Tom Foley recently vowed to be the “jobs governor” ”“ and the “education governor” for good measure, given he was discussing schools at that moment. Democrat rival Dan Malloy has promised to make both early themes of his administration, as well as transportation and transparency.
What is becoming clear as October fast approaches is that Connecticut”™s governor”™s race appears to be boiling down to a referendum on taxes ”“ and whether they would result in a stealthy drain of capital and jobs.
While jobs and the economy were the overriding concern of voters polled by Quinnipiac University in early September ”“ just 12 percent of respondents cited taxes ”“ on no issue are Malloy and Foley farther apart than taxes, and at a recent campaign stop Foley suggested a relentless assault on the topic this fall.
“I”™m clear about no new taxes in Connecticut,” Foley said. “What”™s the plan, Dan, other than raising taxes? He”™s going to have to explain to Connecticut why raising taxes is going to solve all our problems.”
Malloy has pledged to restrict any new income taxes to the state”™s wealthiest residents.
While the state closed the fiscal year with a $449 million surplus, that was the result of one-time infusions from the federal stimulus and state rainy day fund that helped mask a structural deficit of more than $2.4 billion. Erasing that shortfall ”“ and finding exponentially more money needed in future years to cover the retiree pensions and health care ”“ means the state must either hike taxes or undertake a radical downsizing of its government.
“Certainly, Tom Foley has said he just wants to cut (expenses) ”“ whether or not that is feasible is open to question,” said Peter Gioia, vice president and economist for the Connecticut Business & Industry Association (CBIA). “Dan Malloy has been more open to anything.”
Connecticut is entering the second year of a “millionaires” tax that sets a 6.5 percent top income tax bracket for couples making $1 million, or individuals making $500,000. Some critics say the tax unfairly penalizes small businesses due to owners filing taxes using forms for individuals.
A recent Tax Foundation report suggested that more than a third of the revenue from any increase in the top two federal income tax brackets rates would come from business income, due to the large number of small business owners that use individual forms to file their taxes.
“What matters most is not the number of taxpayers impacted, but the amount of business income ”“ and therefore business activity ”“ impacted,” said Scott Hodge, president of the Washington, D.C.-based Tax Foundation, in a prepared statement.
There is also the question of wealthy taxpayers”™ appetite for increased taxes. At a CBIA conference in Stamford in early September, Foley said that while wealthy citizens are unlikely to move abroad as a result of federal income tax hikes, states are a different matter.
“The high-income people will simply relocate,” Foley said. “Many of the high-income people in the state simply don”™t have to live in Connecticut. Many of the high-income people have already been driven out of the state.”
Speaking at a separate CBIA conference in Rocky Hill, the executive director of the Yankee Institute for Public Policy said that the top 6 percent of income tax filers ”“ a cadre of 23,000 people ”“ pay more income taxes than the rest of Connecticut, which has a population of 3.4 million people.
“When you hear people say the rich don”™t pay their fair share of taxes in Connecticut, maybe there”™s a point there,” said Fergus Cullen, executive director of the Yankee Institute for Public Policy in New Haven. “Maybe they pay more than their fair share ”¦ This idea that we (should) just have some wealthy hedge fund manager in Greenwich pay the bills ”“ well, that”™s already how we do things in Connecticut.
“When you tax something, you tend to get less of it,” Cullen added. “A portion of (high-income earners) will choose to continue being successful somewhere else.”
