🔒Republican candidate Stefanowski makes big bet on massive tax cut

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As far as campaign promises go, Republican gubernatorial candidate Robert V. “Bob” Stefanowski's pledge to repeal Connecticut's personal income tax over the next eight years is, objectively, a doozy.

The tax, enacted in 1991, is the state's largest single revenue source, bringing in approximately $10 billion last fiscal year — about half of the general operating budget.

In addition, Stefanowski's nearer-term promises to repeal the corporate income, business entity and gift/estate taxes could eliminate another $1 billion a year from the state's coffers.

The Madison resident and former corporate executive says the tax cuts would give Connecticut a competitive edge it hasn't enjoyed in decades, and fuel an economic boom that would boost Connecticut's remaining tax revenues — particularly sales taxes — as companies and skilled workers flock to the state, which is faced with a stagnant and aging population.

“I do fundamentally believe a lower tax rate drives more tax revenue,” Stefanowski said in a recent interview with the Hartford Business Journal.

Stefanowski's tax plan, endorsed by Reagan-era supply-side economist Art Laffer, has its naysayers, including Democratic candidate Ned Lamont, who argues it would mainly benefit Connecticut's wealthy residents (who pay a higher income tax rate) at the cost of decimating funding for education, transportation and municipalities, eventually leading to steep local property tax hikes.

Stefanowski, 56, wants voters to link Lamont's policies to those of the unpopular Gov. Dannel P. Malloy and he's banking on voters being tired of the state's economic direction and tax burden.

He said the income tax over the last few decades led to a loss of fiscal discipline in state government, leaving taxpayers with higher unfunded liabilities and more debt.

However, Stefanowski's also aware no governor can unilaterally slash taxes. That means a Republican-controlled House and Senate may be the only way for his vision of a more tax-friendly state to become reality.

Slashing taxes

Several states' recent efforts to enact income-tax relief suggest that achieving significant downward movement in rates will be difficult and that promised growth may not occur.

In 2012, Kansas lawmakers passed an income tax cut for individuals and some businesses, championed by former Gov. Sam Brownback, a Republican who was also advised by Laffer.

The cuts did not lead to the kind of economic growth and job creation Brownback promised, and increased the state's deficit, forcing spending cuts. A Republican-controlled legislature repealed many of the tax cuts last year, overriding a Brownback veto.

In Massachusetts, voters in 2000 overwhelmingly approved a ballot initiative that required the state to lower its income tax rate from 5.85 percent to 5 percent within three years. However, that comparatively modest decrease has still not been fully achieved today, 18 years later.

Bay State lawmakers froze the tax rate at 5.3 percent in 2003, where it remained for a decade, as the state fell short of built-in, revenue-growth triggers and was hit by a recession. Massachusetts residents this year paid a 5.1 percent rate on their 2017 income.

Stefanowski said he's confident Connecticut can fully eliminate the income tax within eight years and that it will boost the economy.

He points to states with growing economies, like Florida and Texas, that have no income tax.

However, Stefanowski's plan isn't steeped in blind tax cuts.

In fact, his economic plan, which is co-authored by Laffer, links proposed individual and corporate income tax cuts to revenue triggers, something that hasn't been widely discussed on the campaign trail. If he holds true to that strategy, Connecticut would have to experience certain levels of tax revenue growth in order for a tax cut to kick in.

It's a similar system used in other states including Massachusetts, North Carolina and Arizona, and if Connecticut doesn't experience the kind of growth Stefanowski projects will happen, it could hinder his campaign promises.

Would Stefanowski consider it a success if he managed to cut taxes, but not eliminate the income tax entirely? He seems ardent in his mission.

“We're going to get rid of it,” he said. “It's within the realm of possibility to get a 7 percent tax gone in eight years.”

Stefanowski said he can be a pretty convincing leader — drawing on negotiation and influencing skills learned at his corporate roles at General Electric, UBS Investment Bank and elsewhere. He also rebuts the idea that his tax cuts aren't achievable in a state facing billion-dollar deficits for the foreseeable future.

“Before 1991, we were the fastest-growing economy in the nation,” he said. “How can people tell me it's impossible to do something we've done before?”

Stefanowski said voters' choice at the ballot box next month comes down to a candidate (himself) “who's going to work like heck to get taxes down, and even if you don't believe I can do it, most people that I talk to would rather have somebody who is going to try like heck … versus someone [Lamont] who has been very inconsistent on tax policy and is probably going to raise taxes.”

For the record, the Greenwich Democrat says he won't raise income or sales taxes. He has spoken in favor of a uniform statewide motor vehicle tax, which would result in higher taxes for some, mainly in wealthier communities, but lower taxes for more people overall, he said. Lamont, who has sought to tie Stefanowski to President Trump, has also promised more than $400 million in tax relief in his first biennial budget. Stefanowski still insists that Lamont will raise taxes and pursue highway tolls on Connecticut drivers.

The reality is, none of the major candidates, including unaffiliated Oz Griebel, has identified in detail for voters how they would pay for any tax cuts and close a projected $4.5 billion deficit in their first two-year budget proposal, which will be released in the first few months of 2019.

Tackling the deficit

Stefanowski said he won't support raising the sales tax (or any other tax for that matter) and is also against highway tolls and, at least for now, legalizing and taxing recreational marijuana. He left open some room on legalizing and taxing online gambling.

“I do think we're going to need to go that way, but I want to see more details on it,” he said.

Rather than new taxes or fees, Stefanowski said his plan will rely on spending cuts.

He said he can find $1 billion a year in “waste, fraud and abuse” in his first two-year budget with the help of “zero-based budgeting,” which rejects any assumption that activities funded in a previous budget will be funded in the next. Managers would be forced to “start at zero” and justify each item in their budgets, he said.

He also wants to privatize the Department of Motor Vehicles, improve sales-tax collections, find a buyer or private partner to take on the XL Center in Hartford, and forge public-private partnerships with investors to expand Bradley International and other airports.

300 taxes

In debates and interviews, Stefanowski has posited that the best way to solve a number of the state's problems, from transportation to education, is to grow the economy.

Funding education would be “a No. 1 priority” for his administration, he told a debate audience at UConn late last month.

“The best way to pay for education is to get the economy moving,” he said.

But, if Stefanowski's tax plan becomes a reality, the state will forfeit billions of dollars in tax revenue.

If his envisioned economic boom occurs it could boost property values and bolster municipal budgets, but through what mechanism would the state collect enough revenue to fill that hole?

Stefanowski's answer to that question was less than clear.

“We have 300 taxes in the state,” he said. “So there are plenty of other sources of revenue.”

He has also said state government is too big, not accountable enough, and needs to reprioritize how it spends money.

Here's where Stefanowski stands on a few other key issues:

Minimum wage: Stefanowski does not favor increasing the state's minimum wage, which stands at $10.10 per hour. Some, including Lamont, are pushing to gradually increase it to $15.

“You cannot put a 50 percent increase on small business right now, it will break their back,” Stefanowski said, adding that he supports the concept of a minimum wage, and that it should perhaps be tied to inflation. “More businesses are going to leave, people are going to automate more, you're going to see that pass through right into prices the consumer is going to pay.”

Public-sector unions: Stefanowski, like his competitors, said he intends to ask labor unions back to the negotiating table to voluntarily hash out modifications to the so-called SEBAC agreement, which runs through 2027 with layoff protections until 2021. Stefanowski said he may favor an early buyout in which union members receive an up-front, lump-sum payment.

“We need to sit down and look at SEBAC, be fair to the union employees, make sure they're secure in their retirement but also figure out what we can afford to do,” he said.

Hartford's debt bailout: The three leading gubernatorial candidates have all criticized the legislature's guarantee earlier this year of more than $500 million worth of Hartford municipal debt, which helped the city avoid filing for bankruptcy.

However, the deal did nothing to bring down the city's sky-high commercial property tax rate (74.29 mills), which will continue to stifle private-sector investment. Stefanowski said he would take “a serious look at whether there's an exit plan for Hartford or not.”

“I'd hate like heck to file bankruptcy for our Capital City,” he said.

However, he said bankruptcy “needs to be an option on the table.”

Corporate incentives: Stefanowski has criticized the state's First Five program, which gives forgivable loans to companies in exchange for keeping and adding jobs in the state.

”I don't think it works. I think it costs you a lot more to do that than just fundamentally lowering the corporate tax, cutting regulation and creating an environment where businesses want to be here,” he said.

Stefanowski stopped short of promising to discontinue First Five, saying he needed to examine it further. He said he supports offering some form of tax incentives to keep Connecticut college graduates living and working in the state.

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