HARTFORD, CT — An investment banker running for the Republican nomination for governor is embracing the economic policies espoused by his friend of two decades, Arthur Laffer, who rose to prominence during the Reagan administration.
Bob Stefanowski of Madison was making the rounds with Laffer Monday as the two visited Republican gatherings across the state to promote a plan to phase out the income tax over eight years, the corporate tax in two years, and the gift and estate taxes immediately.
It’s the first economic proposal from any of the two dozens candidates running for the governor’s office in 2018.
Stefanowski described it as an “aspirational plan,” that doesn’t include all the details.
He said eliminating the 9 percent corporate tax that drives companies out of the state is an “affordable and important way to carve a competitive niche.” The corporate tax raised about $1.36 billion in fiscal year 2017, which is 7 percent of the total revenue Connecticut raises annually.
He said it would send a strong signal to the business community to come to Connecticut.
“We’ve had 25 years of tax and spend. It’s about time that we change it,” Stefanowski said.
As for the income tax, Stefanowski said he wouldn’t start phasing that out until his third year in office. The personal income tax accounted for $9.5 billion of the 2017 fiscal year. That’s about 49 percent of the revenue.
Danbury Mayor Mark Boughton was the first gubernatorial candidate to propose phasing out the income tax as part of a larger 10 year strategy.
The second largest revenue stream in Connecticut is the sales and use tax, which brings in $4.3 billion or about 22.3 percent of the total budget. His plan doesn’t make any changes to the sales tax.
Stefanowski said an increase in economic activity would make up for the loss in revenue. He said he also believes there’s about $1 billion in fat he can trim from the two-year, $41.3 billion budget.
The next governor is projected to receive a two-year state budget that’s $4.46 billion in deficit.
Cutting $1 billion on top of finding another $4.46 billion will be no easy task for any of the candidates.
But it’s unclear if cutting taxes will turn Connecticut around.
Laffer recently advised the state of Kansas, where extreme tax cutting measures in 2013 led to deficits and a recent tax increase.
The Kansas legislature recently had to put business entities back on the tax rolls in order to generate $1.2 billion over two years to close that state’s budget hole and to pay for a court-ordered school funding increase.
As for the economic recovery former Kansas Gov. Sam Brownback promised, it didn’t happen at a rate that was strong enough to make up for those tax cuts.
Laffer said Brownback proposed a $90 million tax cut from a $5 billion budget.
Laffer said they’re all Republicans in Kansas, “but they all hate each other.”
He said two years after Brownback’s proposal, the Senate passed a bill calling for $290 million in tax cuts “because all of Sam’s offsets were eliminated daring him to sign it and he did.”
“It was a much different bill than Sam had done,” Laffer said.
He said they had to put $1 billion into the pension fund in Kansas. They were also forced to contribute $64 million to a court-ordered school funding increase and put $350 million in the rainy day fund, but “all of that notwithstanding Kansas still did fairly well. It didn’t do great that’s for sure.”
He said the falling agricultural and oil prices impacted that state’s economy.
However, Kansas has been held up as an example of why the proposed federal tax cuts won’t generate the necessary economic growth to make up for the deficit they will create over the next 10 years.
“By fully embracing failed trickle down economic policies, they are sending a clear message that they will always put the interests of millionaires and billionaires before the interests of working people,” Leigh Appleby, a spokesman for the Connecticut Democratic Party, said. “People in Connecticut and across the country are fed up with with federal policies that, time and time again, give massive handouts to the wealthy while the rest of us pick up the tab. We need a Democratic governor who will fight for Connecticut families, not a Republican who will rubber stamp the Trump agenda.”
Laffer, who advised President Donald Trump during the 2016 campaign, said, “You cannot tax this state into prosperity and poor people can not spend themselves into wealth. Believe me when I tell you, that’s what this state is suffering from big time.”
He said that in the short-term if Connecticut has to sell off property or offer a tax amnesty program it may help buy them some time as they look to lower their tax rates.
“You’ve got to get those rates down now,” Laffer said.
Stefanowski said Connecticut would make up for the revenue loss “through economic growth.”
Another part will be made up through cutting spending and the other part will be made through attrition in the state workforce, he added.
Connecticut is in its current fiscal crisis is because it failed to make the actuarially required contributions to its state employee pension plans and “other post-retirement benefits,” which include retiree healthcare.
Stefanowski acknowledged that Connecticut’s pension plan is underfunded by about $74 billion, according to the Tax Foundation.
However, he was unable to say whether he would make the actuarially required contribution to the plans, a commitment made by Democratic Gov. Dannel P. Malloy, who isn’t seeking re-election.
“I am very sympathetic to the state workers,” Stefanowski said. “I think the politicians promised them that something was going to come and they haven’t funded it.”
He said you have to look at whether it’s realistic to think the state will make up $74 billion over the next few decades.
“We can continue to kick the can down the road or we can have a discussion,” Stefanowski said.
He said “giving people promises about money that is never going to be there is not the way to go.”
The pensions are negotiated by the State Employees Bargaining Agent Coalition and the governor’s office. The current contract which defines the health and pension benefits for state workers doesn’t expire until 2027.
Stefanowski said they would fund the pensions if they could.
“If the budget can afford it then we should do it,” Stefanowski said. “If the budget can’t afford it then we would have to take another look at it. I don’t have all the answers to all the detailed questions today.”
He said he thinks they should have a rational discussion about what will be there and what should be paid.
Larry Dorman, a spokesman for AFSCME, which has the largest number of SEBAC members, said he’s glad Stefanowski is not his financial adviser because he seems to be advocating ignoring, if not breaking labor agreements.
Dorman said his plans would not put Connecticut back in business, but would do the exact opposite.
“I think all the candidates have to realize the state has a revenue problem,” Dorman said.
He said the unfunded pension liability was created by governor who ignore their legal and financial obligations. He said that’s why the legislature approved two agreements with state employees to stablize pension funding and the concession agreement.
“State employees have stepped up at every opportunity,” Dorman said Monday.
The unfunded pension liability is the main reason the state is currently facing deficits because so much of the budget is now tied to funding the pensions and debt service. It’s nearly half of the annual budget.
Stefanowski maintained that the economy would respond to lowering taxes.
“I wouldn’t underestimate telling people Connecticut is back in business,” Stefanowski said.
He pointed to the stock market’s reaction to the U.S. Senate’s approval Saturday of a tax package that hasn’t been implemented yet, but is just being talked about.
The Dow rose nearly 300 points Monday.
Stefanowski said he’s going to be candid with people and make the tough decisions. He said he thinks there’s still a lot of “wasteful spending.”
He was unable to point to any specific discretionary spending he felt was wasteful.
Art Laffer and Bob Stefanowski release economic proposal.
Posted by CTNewsJunkie.com on Monday, December 4, 2017