New England's Illinois: Connecticut's Budget Mess Shows That States Can't Tax Themselves to Prosperity

Dems want higher taxes on e-cigarettes, cellphone bills, vacation homes, hospitals, cigarettes, hotel rooms, Uber, nonprescription drugs, and fantasy sports.


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Even in deep blue Connecticut—one of just six states in the country where Democrats control both halves of the state legislature and the governor's mansion right now—the suggestion of a $1.8 billion tax increase has incited a political revolution.

Three Senate Democrats and five Democrats in the state House bailed on a plan to impose an array of new taxes, including a 75 percent wholesale tax on electronic cigarettes and other vaping products that likely would have killed dozens of small businesses in the state. The budget plan proposed by Gov. Dannel Malloy also would have hiked taxes on cellphone bills, vacation homes, hospitals, cigarettes, hotel rooms, ride-sharing services, nonprescription drugs, and fantasy sports gaming, the Hartford Courant reported.

Coming on the heels of two of the largest tax increases in state history—lawmakers raised taxes by $1.5 billion in 2011 and then hiked them by another $1.2 billion in 2015—seems to have been too much to ask.

"How do you come out with a multi-page budget with all these tax increases and keep it secret from your membership and expect you're going to get everybody in line in a couple of hours? It's a ludicrous thought," Senate Republican leader Len Fasano, R-New Haven, told the Courant. "People are tired of taxing."

He seems to be right. Republicans, long in the minority in the Connecticut legislature, have made big gains in recent years by opposing tax increases in Hartford. Last week's drama seems to suggest that state lawmakers, too, are getting tired of taxing, or at least are getting tired of the political consequences of it.

"Yes, I may be risking my political career," said state Sen. Paul Doyle, D-Wethersfield, on Friday, announcing his intention to vote against the Democratic budget plan. "My party may not be happy with me. But to be honest, I don't care."

If it were true that a state could tax its way to prosperity, Connecticut should be on a non-stop winning streak. Instead, state lawmakers are battling a $3.5 billion deficit. Companies including General Electric, Aetna, and Alexion, a major pharmaceutical firm, have left the state in search of a lower tax burden. Connecticut is looking increasingly like the Illinois of New England: A place where tax increases are no longer fiscally or politically realistic, even though budgetary obligations continue to grow and spending is completely out of control. In fact, on a per capita level, Connecticut extracts more—about a thousand dollars more—from its residents than Illinois does, according to the U.S. Census Bureau's data on state taxes.

The Republican budget plan, which passed the state Senate Friday with those three Democratic defections, relies on a mix of common sense changes and some wishful thinking. It would impose a 10 percent cut on some state government budgets, would impose a hiring freeze for many state government positions, and would cut funding for higher education. Much of the savings would be bankrolled by future changes to public sector workers' pension benefits, hardly a political certainty. [Update: The budget bill cleared the lower chamber with a 77-73 vote Saturday.]

The GOP plan makes "makes important structural changes," said Carol Platt Liebau, president of the Yankee Institute, a free market think tank based in the state, who applauded the three Democrats who broke ranks to support the Republican budget. "We echo their sentiments that Connecticut deserves a budget that makes the changes necessary to put Connecticut on a better path."

Malloy says he will veto the budget if it reaches his desk, according to the Associated Press.