Dannel Malloy’s first major initiative as governor was to call for the second largest tax increase in Connecticut’s history in 2011. In conjunction with legislative allies, Gov. Malloy expanded or increased at least 77 taxes at that time in hopes of raising nearly $2 billion in additional revenue. He did this while at the same time touting Connecticut as “open for business.”
You could say that the messages were mixed.
To his credit though, Gov. Malloy’s actions since then demonstrate that he does recognize the power of tax cuts to improve the economy. The only problem is that after raising taxes on everyone, the Governor likes to pick tax cut winners and losers. For example, the company of the state’s richest man, Ray Dalio, was a winner. Bridgewater Associates, the company Dalio founded, will receive $115 million in tax breaks to move from Westport to Stamford. To date, tax breaks through the First Five Program and its successors reduced the burden for some taxpayers by more than $300 million. Lump in the estimated $100 million Earned Income Tax Credit for taxpayers who didn’t earn enough to pay income taxes and you have the makings of a killer 2014 gubernatorial re-election television ad: Dan Malloy cut taxes by nearly $500 million.
The Governor now proposes to eliminate the property tax assessed on motor vehicles valued less than $28,500. The highly regressive car tax, as it is colloquially known, is an administrative nightmare for tax collectors and a burden for taxpayers. These factors make the car tax a good candidate for cutting.
A closer look at the numbers suggests that people should not get excited about the idea because it is unlikely to survive the Connecticut General Assembly’s scrutiny. Indeed, the proposal may be more valuable politically than it will ever be as a policy matter.
Motor vehicles comprise 5.5 percent of local grand lists statewide but the percentage varies widely. In Windsor Locks, for example, such assessments comprise 14 percent of property tax revenue while Greenwich’s higher real estate property values mean that the car tax represents just 2 percent of their revenue. With relatively low property values and motor vehicle assessments making up a larger share of the grand list, four of the six most impacted towns would be Thompson, Windham, Canterbury, and Brooklyn. These towns have one other factor in common: they are all represented by the powerful Sen. Donald Williams, the state Senate’s President Pro Tempore.
The odds of Sen. Williams allowing the Malloy car tax cut to stand as proposed — and blowing a 10 percent hole in four of his local budgets — seem quite small.
As a result, the primary value of the car tax cut would seem to be political. Gov. Malloy gets to be for reducing taxes and anyone that opposes his plan runs the risk of appearing to stand against tax cuts. It is an advantageous position.
But it isn’t all puppies and flowers on the tax cutting front for Gov. Malloy. The administration line says that the budget doesn’t include any tax increases, but they have to stretch common sense a bit to make the claim. Taxpayers know the truth: continuing a tax scheduled to expire is a tax increase even if you don’t call it a tax increase. Word games aside, cutting the tax on cars is a good idea — even if it will probably never happen.
Heath W. Fahle is the Policy Director of the Yankee Institute for Public Policy and a former Executive Director of the Connecticut Republican Party. Contact Heath about this article by visiting www.heathwfahle.com