Governor-elect Dan Malloy has his transition team in place and cabinet appointments will soon emerge as the days of having a Republican as head of state grow short.
Soon the legislature will come back to Hartford. Unlike the swallows returning to Capistrano, this usually isn’t an encouraging sign. And with talk certain to turn quickly to new manners of taxation, 2011 may prove to be a perilous year indeed.
Malloy’s lot is not an easy one. He has inherited a budget with a $3-billion-plus hole in it and he’s armed with little more than a roll of duct tape. The obvious options are to cut spending or raise revenues and the betting is majority Democrats will explore the latter first.
Bonnie Stewart, vice president of the Connecticut Business & Industry Association, framed the issue well when she said recently: “No tax increase is harmless.”
That’s so true, although some taxes have more damaging effects than others.
Some big city mayors are salivating over the idea of a 1 percent commuter income tax. It’s a neat way for the wounded cities to get into the pockets of those who fled to the suburbs and in effect magnified the urban problems. And there’s no doubt the cities are desperate to plug the holes left by state aid cuts. But imposing that kind of a tax is also a great way to signal Connecticut’s continuing status as a place that doesn’t value business, innovation or job creation. It would give those on the fence about staying here or investing here another good reason to join the chorus of “anywhere but Connecticut.” And it would be the death knell for any investment or job creation in those urban centers, meaning the downward spiral would likely accelerate.
There seems a broader sentiment that a fresh look at an increase in the sales tax — and running a rake through the exemptions — is overdue. Yes, the sales tax is regressive, hitting the poor harder than the well-to-do. But the rate hasn’t gone up since 1991 and Connecticut sales tax is now lower than all of its neighbors. A half-cent hike in the sales tax could raise about $270 million. By moving from 6 percent to 6.5 percent, the state’s sales tax would still be a half-cent below Rhode Island and New Jersey and only a quarter-cent above Massachusetts, which may well look at raising its rate too.
An even larger source of help to state coffers could be available in following New York’s lead in imposing a sales tax on Internet sales. When the legislature looked at the subject last year, it concluded — correctly — that there was a price to be paid by being on the front edge of that step. Some small businesses that did business online would be hurt. But now, with some cover from a larger neighbor, legislators may be emboldened and take a legitimate step toward evening the playing field for brick-and-mortar retailers and adding a half-billion dollars to the revenue pot.
We’re realists. The budget problem needs to be fixed and that means we’re all going to end up paying more somewhere along the line. It’s unfortunate but let’s look past partisan posturing and get on with fashioning a fix that doesn’t make things worse.
The key here is in looking at the competitive landscape. There’s some room to adjust the sales tax rate and likely increasing safety in taxing Internet sales. On the other hand, if the governor-elect and his party’s majority in both houses want to look at raising income tax rates on individuals and business, they’d be making a bad situation worse. And a commuter income tax needs to be dead on arrival.
First, do no harm. Don’t make the competitive landscape worse.
