Are canceled tax cuts actually tax hikes in disguise? Connecticut candidates for governor disagree
Republicans, including his gubernatorial challenger Bob Stefanowski,have said Democratic Governor Ned Lamont increased taxes by $900 million per year in his first budget —among the largest in recent history. They said Connecticut residents expected tax breaks instead. Democrats argue against the notion of a bait and switch.
WSHU’s Ebong Udoma spoke with CT Mirror’s Keith Phaneuf to discuss his article, “Repealing tax relief in CT: Same as a tax increase, or just bad policy?” as part of the collaborative podcast Long Story Short.
WSHU: You write that Republican gubernatorial candidate Bob Stefanowski says a promised then canceled tax cut is the same as a tax hike. Democrats disagree. What are we talking about here?
KP: Well, the story started because Bob Stefanowski and other Republicans would say that in Governor Lamont’s first budget, he raised $1.8 billion in new taxes. And Democrats, including Governor Lamont, would sometimes say that it didn't have any tax increases. And it just seemed like such a discrepancy. I wanted to try to pull that apart. And the numbers actually get closer as much as it sounds like zero and 1.8 billion are so far apart. Governor Lamont is really saying I didn't do any major tax increases. So he concedes there are some.
Bob Stefanowski — the state budget is in two year cycles — but he's conveniently using a two year figure without mentioning it's a two year figure. So you can cut that 1.8 billion in half. And then I started to look a little closer. Governor Lamont and the Democrat controlled General Assembly had between $200 and $250 million in new taxes. And then there was about another $650 million.
That's the difference between $900 and $250 in previously approved tax cuts that were canceled before they could ever take effect. And the Democrats say, if I promised you tax relief, but then I renege on it, I take it away before you ever got to enjoy it. It's not a tax hike. Republicans are saying no, we're not talking about just a promise, you actually signed this relief into law, and then you had to pass a second law before the relief could start to take it away. That actually causes a problem for households and businesses. That's really what the crux of this whole disagreement is about.
WSHU: So basically, taxpayers anticipated that they'd get a tax break, and they didn't.
WSHU: And the fact that they anticipated meant that they might have planned on doing something with that tax break that they can no longer do now.
KP: Well, that's what I was talking to economist Fred Carstensen from UConn about, he said, you know, maybe it's not a tax increase. Forgive my double negative. It's not nothing. The Democrats had passed a bill that would have created a new income tax credit for college graduates in certain programs if they stay in Connecticut to help them with their student loan debt. This was one of the tax relief ideas that was suspended in 2019.
Fred Carstensen was saying that's the type of thing that could prompt a student graduating who's thinking about taking a new job in Hartford, but also looking at a new job in Boston to say, well, that'll be the difference maker for me, I'll go to Boston. The bigger example is when businesses get let down on tax relief, their confidence goes away very fast. If they were thinking about adding new jobs in a given year, they're much more likely to put those new jobs on hold.
WSHU: Now, the most important part about this is not just that it's an argument for most politicians but it's an argument that is being used in the upcoming gubernatorial election. How does that play out?
KP: Well, I think in the past, because Governor Lamont's predecessor, Governor Malloy, who's also a Democrat, really would try to emphasize, look, I don't even want to tell you what this is. I'm going to tell you what it's not, it's not a tax increase. The Republicans are not accepting that anymore. They're coming out and saying, Look, you can call it what you want, but it's causing a problem. We're not backing off those numbers.
I know that the Republican candidate for the US Senate, Themis Klarides, who's a former State House Minority Leader ... She would call it fiscal bait and switch. And I think her point is that leading into an election, the party that passes the tax relief often knows, after the election, we're not going to be able to deliver.
WSHU: What about the argument that Lamont and the Democrats make, that we're going to have the biggest tax relief in the history of the state, and it's going to take effect before the November election. $600 million they say in tax relief, and some checks, rebate checks are going to be going out for the Child Tax Credit well before November. Do you think that might mitigate, mitigate it from the efficacy of this argument as far as taxpayers are concerned?
KP: I think that's a really good point that speaks to a couple things. One, I do think that the Democratic party has learned from that, because I do think, to a certain extent, that is going to mitigate that. It is one of the largest in state history, depending on how you measure some of the relief that was done in the 1990s, during the Governor John Rowland's administration. I think it also speaks to what a difference the last three or four years have made.
When you tend to do this, whether you want to call a fiscal bait and switch or whatever, dangle relief and not deliver it. That's usually because you don't have any relief to give, but you still need something to campaign on. In other words, the state's rainy day fund was empty. Now the state's rainy day fund is flush with cash, we've got over $3 billion in that, in addition, we have another $3.9 billion surplus for the fiscal year that's going to end on June 30. So there's something to go for.
The Republican counter message, by the way is still that even though this 660 million is one of the largest tax cuts in state history, it is a relatively minor fraction of the bounty that's currently in the state's coffers, and that we're looking at the highest inflation rate in 40 years and that the state should be doing more. But I think you're right, I think, I mean, certainly Governor Lamont when I spoke to him made it clear you should deliver on the tax relief that you passed.
In Governor Lamont's defense, his first budget did not deliver some of the tax relief on the books, but he wasn't governor when it was promised. He inherited a deficit. Governor Malloy in the previous legislature had made these tax cuts into law. And then Governor Lamont decided Connecticut couldn't afford them.
So yeah, I do think going forward that the Democratic Party is trying to take a step away from that, but it's much easier to step away when you're sitting on a pile of cash.