This op-ed was originally published in the Hartford-Courant on December 19, 2002
When Connecticut’s tax receipts were booming, it was easy to ignore the stranglehold that state employee unions have on the state budget process. Now that revenues have fallen dramatically, this is no longer the case. Given the state’s $1.5 billion shortfall next fiscal year, the legislature can no longer shirk its responsibility to address out-of-control spending, particularly on government salaries, health care and pensions.
Unfortunately, the package proposed by Gov. John G. Rowland asks for the mildest of concessions from unions in exchange for new taxes on cigarettes, income and property. Rather than target the politically well-connected and powerful unions, Rowland picked the easiest political targets he could find: smokers and millionaires. His tax package would increase cigarette taxes by 36 percent – making Connecticut’s cigarette taxes among the highest in the nation – and increase taxes on income in excess of $1 million by 22 percent. Yet both increases could have the perverse effect of decreasing revenues as cross-border cigarette sales and bootlegging become the norm and high-income residents repatriate to New York.
Of course, if Rowland were to confront the unions, it could look unseemly for two reasons: Only five years ago, he signed the long-term health and pension benefits plan that has placed the state in such a bind. Also, he is scheduled to receive a 96 percent increase in salary in January. How could Rowland argue credibly for other state employees to take a pay cut when he secured such an obscene salary increase for himself?
Connecticut state employees are among the most lavishly compensated in the nation and enjoy benefits packages unheard of in the private sector. State employees earn an average of $51,000 a year – fourth in the nation – but, more important, wages represent only 60 percent of their compensation, compared with 73 percent for the state’s private-sector employees. The difference is lavish pension and health care plans: Some single state employees are not required to pay a cent for medical and dental premiums.
The unions make the case that their pay should be high to attract talented employees because Connecticut leads the nation in per capita income. But this is nonsense. Connecticut state government salaries seem completely disconnected from the private sector: State employees have seen pay raises as high as 78 percent over the past eight years.
Moreover, the number of residents whose businesses are located in other states distorts the state’s income figures. The state’s relatively low income-tax rate is what attracts them to live in this state, thereby increasing per capita state income. If the “millionaire’s tax,” as it is dubbed, takes effect, these people may decide the longer commute can no longer be justified by the advantage in take-home pay. These people are not in the pool of prospective government employees. Yet, even if they were, that does not explain why benefit packages in the public sector must be so lavish.
Alas, budgeting is a political process, and from a political perspective, it is easy to see why cigarette taxes are preferable to union confrontation. Shifting the cost of sumptuous compensation onto smokers – disproportionately low-income workers and minorities – is far easier than risking electoral backlash from unions. But this cycle of political dependence on cigarette revenues has led to an annual $13 billion nationwide transfer from the poorest Americans to government coffers.
And whatever one thinks of tobacco taxes, the conventional argument for them suffers from an obvious defect: Advocates claim that the tax will provide dramatic increases in revenues and reductions in smoking at the same time. But if the tax succeeds in its public health mission, it will fail to close the budget deficit and vice versa.
Gov. Rowland has chosen the path of least resistance. It would be a great misfortune if a deterioration of the state’s economy and fiscal health were the ultimate price for Rowland’s handsome new salary.
Jason M. Thomas is a staff economist at Citizens for a Sound Economy Foundation, a 15-year-old conservative group in Washington that advocates for less government and lower taxes.
Copyright 2002, Hartford Courant