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Making the State Budget Work for Working Families — Part 1
By Tom Sevigny, Canton
Tom Sevigny is Green Party Candidate for State Senate in the 8th District.
I don’t think I need to tell you that government does not work for the average family. Despite both parents working longer hours to maintain a decent standard of living, the facts illustrate that more and more families are falling behind. The reality is that the rich are getting richer, individuals and families pay more in taxes than most corporations, and our elected officials are doing next to nothing about the situation. No area reveals how government has not worked for the average Connecticut family more than the state budget and its impact on the income of state residents.
There are two main problems with the state budget: (1) it favors the wealthy and big business over average people; and (2) it imposes a budget cap that shifts the tax burden onto the average citizen.
Connecticut’s income tax structure favors the wealthy over the average Connecticut family. Connecticut’s marginal tax rate is highest on income in the $60,000 to $90,000 range and decreases to 4.5% on income over $100,000. Connecticut’s 4.5 % tax on the highest income provides the 5th lowest top income tax bracket among states and the lowest in the tri-state area (New Jersey’s rate is 6.85%; New York’s is 6.37%).
Similarly, the Connecticut state budget has favored business over municipalities and people. Connecticut has aggressively pursued a supply-side approach to economics in an attempt to stimulate industrial development and maintain manufacturing jobs. Corporate tax rates were decreased from 11.5% to 7.5% in 1994, the lowest of all adjoining states. In addition, $1.3 billion in business tax abatements have been passed in the last ten years. Finally, tax credits for industry have increased about 50-fold since 1991. As a result, by 2002, Connecticut forgoes more than $0.70 in tax breaks for every dollar in business taxes it collects. Overall, corporate taxes as a percent of total revenues fell from 19% in 1991 to 7% in 2002. The result? The tax burden in Connecticut has shifted from industry to individuals. In addition, Connecticut has continued to protect industry from property taxes at the expense of municipalities—and, consequently, at the expense of individuals who pay local property taxes.
The second main problem with the state budget, the budget cap, was designed to limit the growth of state government. Regretfully, it has had unforeseen and negative consequences.
Because federal funds are included in the state budget cap, Connecticut often cannot accept federal funds because we would exceed the budget cap. In 1990 Connecticut received $0.78 in federal assistance for each federal tax dollar paid. By 2000 this decreased to Connecticut receiving $0.63 in federal assistance for each dollar paid. As a consequence Connecticut currently ranks 49th in the nation with regard to federal funds received relative to taxes paid. The result? The tax burden is further shifted onto state taxpayers.
Bonding is not included in the budget cap. Thus, the state has increasingly relied on bonding as a means to fund expenditures. In fact, 57% of state bonds are now utilized for ongoing state operating expenses. Bonded debt has doubled in the last decade. As a result, Connecticut ranks first in the United States in terms of debt per capita. The cost of bonding has increased from 6.2% of the state budget in 1989 to 11% in 2002. The result? The tax burden is being shifted onto future state taxpayers, and the capacity of state government to respond to needs is being constrained.
Another consequence of the budget cap is the state government’s increasing reliance on tax abatements as a means of subsidizing industry, thereby bypassing direct subsidies that would be considered an expenditure. In 2002, tax exemptions accounted for $3.7 billion, or 29% of the total revenues of the state government. Put another way, Connecticut spent 29% of its revenues in tax abatements, which go predominantly to large corporations and the wealthy.
The state Office of Fiscal Analysis has found that $738 million of these tax abatements are "expedient"—that is, they have no rational basis. Many of them are hostile to the common person. For example, we exempt bulk mail advertising from the state sales tax, hence subsidizing "junk mail" and annoying the average citizen. Similarly, we exempt winter storage for personal boats over 40 feet, thereby subsidizing recreation for the wealthy at the expense of the common person. The overall result? The tax burden is shifted onto the average Connecticut citizen.
What’s the impact of this pro-corporate, pro-wealthy state budgeting? Have all the citizens of Connecticut enjoyed increases in income as a result of vibrant industry, as supply-side economic supporters suggest? Absolutely not! These budgeting decisions have been nothing short of disastrous for the average Connecticut family.
• The lowest 20% of families in Connecticut lost on average 19.4% of their income from 1990 to 2000. This is the worst in the nation, and four times worse than the second worst state. To show how shockingly bad this is, the income of the poorest 20% of Americans gained on average 12.3% during this period.
• The second lowest 20% of families in Connecticut lost on average 5.8% in income, the second worst in the United States. This group in the United States gained on average 9% during this period.
• The middle 20% of Connecticut families gained income, but at a rate 1/5th of the national average. Connecticut was the 7th worst in the United States.
• Even the next to top 20% of families in Connecticut saw their income grow less than the national average.
However, when we get to the top 20% of Connecticut incomes, things begin to change:
• The top 20% of families in Connecticut gained on average 21.2% from 1990 to 2000, ranking Connecticut 13th in the United States.
• The top 1% of Connecticut families gained on average 185% during this period. Comparable state data are not available. However, I imagine that Connecticut led the nation in this category.
• Overall, Connecticut had the greatest increase in income disparity between rich and poor of any state in the United States. The median household income in Connecticut dropped from 1st in 1990 to 5th in 2001 while Connecticut continued to have the highest per capita income of any state. In sum, Connecticut experienced the greatest decrease in median household income of any state in the United States.
Finally, state budget attempts to save manufacturing jobs in Connecticut through decreased tax rates and tax abatements have been a total failure:
• Manufacturing employment in Connecticut decreased 3.5 times the national average from 1989 to 2001, when 105,000 manufacturing jobs were lost, accompanied by the greatest decrease in unionization of any state in the period from 1995 to 2001.
• Whereas Connecticut ranked 45th in the nation in terms of people working multiple jobs in 1989, it now ranks 15th in the United States.
To be continued … Part 2 will describe what can be done to implement a "Fair Share" state budget. For more info about Tom Sevigny’s campaign, call him at 860-693-8344, or e-mail <capeconn@attbi.com>.
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