What (not) to do? Think tank calls Conn. fiscal efforts a cautionary tale

The report on Connecticut’s example for New Jersey. – Garden State Initiative

Garden State Initiative, a nonpartisan think tank headed by Regina Egea, the former chief of staff to Gov. Chris Christie, released a report Monday morning detailing how attempts by Connecticut’s governmental leaders to use higher taxes to correct financial problems similar to New Jersey’s have failed.

“The lesson that emerges from this study is clear: For those who think that New Jersey’s budgetary challenges are rooted in inadequate levels of taxation, Connecticut provides a cautionary tale,” the report said.

Higher taxes, the report concluded, are not the answer.

“In New Jersey, many state officials and candidates for office believe that the state’s fiscal struggles can be alleviated through higher taxes and healthy economic growth rates,” the report said. “That is precisely the combination that Connecticut has not seen over the last several years.”

Among other points, the 16-page report said:

  • Raising taxes on the top 1 percent — a millionaire’s tax — has not helped solve Connecticut’s pension and debt problem. In fact, GSI said, it has made it worse.
  • Bringing health-care programs for government workers into alignment with private-sector norms would raise billions in savings that could then be rededicated to shoring up the pension systems.

“The millionaire’s tax touted by many New Jersey Democrats is projected to bring in about $600 million, according to the New Jersey Office of Legislative Services, a sum far short of the billions that the state needs to adequately fund its pensions,” the report said.

“Throughout Connecticut’s recent series of tax hikes — which have raised billions in annual revenues — officials found that they could not simply rely on taxing the 1 percent alone. They had to raise the sales tax rate, reduce or eliminate many exemptions, and raise income taxes on all single filers making more than $50,000 and joint filers making more than $100,000.”

The report comes out weeks before New Jersey voters go to the polls to elect their first new governor since the economic downturn.

Egea, the president of GSI, who also previously served as chief of staff to state Treasurer Andrew Sidamon-Eristoff, said she understands she is associated with the Republican party, but feels the work of the Morristown-based GSI will not have political spin.

“We’re really not attempting to take a supportive position for either candidate,” she said.

“I am a Republican; I can’t deny that. But this is being fiscal responsible, with research-based conclusions, and trying to educate what the choices are and what the implications of those choices are.”

(READ MORE from ROI-NJ on the GSI report.)

Egea said she hopes GSI can help shed light on the entire issue, not just campaign talking points.

“It’s not just about the 1 percent, it is about just raising taxes without addressing the underlying costs,” she said. “We really have to address the underlying cost.

“Just taxing and assuming prosperity will follow did not work in Connecticut. That’s the case the report is trying to make: Connecticut is a good laboratory for New Jersey.”

The comparisons, the report said, are clear.

“Whatever course Trenton takes, it can learn a lesson from its peer states,” the report said in its executive summary. “Connecticut, in particular, has a similar social and demographic profile, and it faces similar challenges: severe pension underfunding, a high tax burden and politically powerful government unions.

“Unlike New Jersey, however, Connecticut has taken a more consistently ‘big government’ approach to fiscal policy. The state enacted three major tax increases — yet, its pension system remains deeply underfunded, its budget deficits are unabated and its economy has posted one of the worst track records of any state in recent years.”

The report was produced by Stephen D. Eide, a senior fellow at the Manhattan Institute, whose work focuses on public administration, public finance, political theory and urban policy.

The GSI report said such tax increases would hurt the New Jersey economy as a whole.

“New Jersey’s fiscal needs are urgent. Trying to close New Jersey’s multibillion-dollar structural deficit through taxes alone would run a great risk of distorting and weakening economic activity precisely at a time when the state fiscal outlook cannot tolerate Connecticut levels of growth. It will not be possible to stabilize New Jersey’s budget through taxes on the 1 percent alone and still maintain a balanced revenue system.

“Fully funding current levels of employee benefits by raising income taxes on millionaires, according to the New Jersey Pension and Health Benefit Study Commission, would mean an average increase of over $200,000 in the annual tax bill of affected filers, a change that is sure to have enormous unintended consequences in the unlikely event that it is implemented.”

The tax burden in New Jersey and Connecticut always will be high, the report said. Dealing with that issue honestly is key, the report said.

“Up to a point, it is understandable, and certainly inevitable, that Connecticut and New Jersey are high-cost states,” the report said. “When governments raise taxes not to enhance services but to pay for the costs of the past, this not only weakens their advantage relative to low-tax jurisdictions but also to high-tax jurisdictions with a reputation for a high quality of life.”

To view the report, click here.