Why do I have to pay taxes on my 2007 tax refund?

Connecticut Gas Taxes: Playing Politics with a Serious Crisis

The Connecticut House and Senate each approved a bill early Thursday morning that adds to the state’s existing $150 million deficit by cancelling a scheduled increase in the state’s tax on wholesale earnings from gasoline sales. Governor Rell is expected to sign the measure. The bill prevents what would have been a 0.5% increase in the petroleum wholesale earnings tax, which industry lobbyists are claiming would have increased prices at the pump by about 5 cents.

The estimated cost of this bill has been pegged at $25 million. It may at first seem odd that Connecticut lawmakers have decided to make cutting taxes a top priority when the state is facing a budget deficit and numerous counties have been forced to scale back vital public services whose benefits almost certainly outweigh their costs. Even in the face of these serious budgetary issues, one of the first reactions from Democratic House Speaker James A. Amann was that “We didn’t raise taxes, so we’re pretty proud of what we’ve done.”

What’s going on here? Why is restricting revenues such a priority when it couldn’t be more obvious that state and local governments need more funds to provide the services Connecticut families have come to expect?

The answer: It’s an election year! Republican legislators, outnumbered 44 to 107 in the House and 13 to 23 in the Senate, have opted for a strategy of supporting viscerally appealing, though often fiscally irresponsible plans designed to gain some positive publicity and win votes in November. The majority of those plans have been ignored by the Democrats in power (for the most part with good reason), though with gas prices as high as they are, the Democrats decided not to take the political risk associated with appearing uninterested in the effects of high fuel costs on Connecticut families.

This isn’t at all surprising. Many state lawmakers across the nation have latched on to the headlines being generated by high fuel prices by proposing gas tax reductions much better suited for winning votes than for actually helping anybody in need. This plan in Connecticut is no different.

Even if we put aside our skepticism of the petroleum industry’s figures and accept their estimate that this bill will prevent a 5 cent increase in the price of gas, few observers could seriously suggest that avoiding this increase will do anything to improve the financial situation of Connecticut families. During the brief debate that occurred earlier this year over a proposed suspension of the 18.4 cent federal gas tax, that plan was heavily criticized for only providing the average driver with a $30 tax cut. The Connecticut bill would save drivers less than a third of that amount, though it would play a noticeable role in driving the state government millions deeper into debt.

Well aware that this bill would only provide a negligible tax cut for the average family, one legislator insisted, in typical election-year fashion, that it is important to “let our citizens know that we are very concerned about what they’re up against”.

That’s what makes this whole debate so discouraging. The problem is not just that Connecticut lawmakers are shamelessly hunting for votes – it’s that in the face of a serious crisis for lower-income families, lawmakers have decided that “letting our citizens know we’re concerned” is more important than actually doing something meaningful to help them.

Even if Connecticut legislators wished to avoid a needed restructuring of their state’s regressive tax system, this does not change the fact that much better options exist for providing real assistance to families hurt by high fuel costs. Instead of offering across-the-board tax relief that benefits both Connecticut’s wealthiest, as well as its poorest families, a targeted low-income gas tax credit of the type enacted in Minnesota could have distributed more gas tax relief to lower-income families at a similar cost. Alternatively, Connecticut could have given consideration to enacting a modest Earned Income Tax Credit (EITC) or a meaningful low-income, refundable property tax circuit-breaker. Admittedly, an EITC or circuit-breaker would cost more than a gas tax cut or gas tax credit, but if legislators are genuinely “concerned”, wouldn’t it be worth it to find the money somehow? Until legislators readjust their priorities from winning votes to improving the lives of those struggling to make ends meet, Americans shouldn’t expect any relief beyond the kind of poorly targeted and gimmicky tax cut passed in Connecticut.

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Virginia: Gilmore Allies Jumping Ship

In his tenure as governor of Virginia in the late 1990s, Jim Gilmore was notable primarily for one thing: the cut in the state’s “car tax” he championed. It got him elected, and it was the issue he rode throughout his governorship. And lawmakers in other states took note: cutting vehicle property taxes has been a frequent bipartisan goal of state lawmakers for the last decade now.

But, as countless Virginia observers (and a bunch of angry lawmakers) have noted since then, supporters of the Gilmore car tax cut were sold a bill of goods. It turned out almost immediately that repealing the car tax was unaffordable, since the short-term surpluses that made the tax cut seem feasible were, well, short-term. And Gilmore’s tax cut has been a political football in the state’s budgeting process ever since.

Now, Gilmore has decided to make another run at statewide office, and is running against Mark Warner for the US Senate seat being vacated by John Warner. And he’s finding out what happens when a snake-oil salesman tries to fool the same people twice: it doesn’t work.

The Washington Post reports this week that Vincent Callahan, a Republican lawmaker who was instrumental in the initial passage of Gilmore’s car tax cut, is endorsing Gilmore’s Democratic opponent, Warner, in this fall’s race. The reason, according to Callahan: Gilmore’s misleading advocacy of the car tax cut last time around.

Callahan said Gilmore, Warner’s GOP opponent, misled legislators and the public about the state’s finances and the cost of his signature effort to eliminate the car tax when he was governor from 1998 to 2002. ‘The figures Gilmore used were so utterly erroneous and far-fetched that they were mind-boggling,’ said Callahan.

Of course, revenue forecasting is often more of an art than a science. But in retrospect, there’s little disagreement (from anyone except Gilmore himself, that is) that Gilmore lowballed the cost and the affordability of his car tax cut .

A Washington Post editorial noting Gilmore’s razor-thin primary win over a relative nobody for the GOP nomination offers a scathing review of Gilmore’s fiscal policy record:

At the heart of the Gilmore legacy was his insistence on ramming through a tax cut whose dimensions dwarfed his cavalier initial estimates, and his simultaneous approval of heavy increases in state spending, a strategy — if it can be called that — suggesting that Mr. Gilmore assumed that the boom times in Virginia would never end. He pursued his signature tax cut, a phased repeal of the levy on personal vehicles, even after it became crystal clear that the repeal would drain hundreds of millions of dollars from the budget and cripple state finances. He insisted on his course despite being warned — by fellow Republicans, among others — that it would eventually force deep reductions in spending on core state priorities including transportation and education. And he shrugged off specific, repeated and well grounded forecasts that Virginia was heading for an economic slowdown brought on by the bursting of the technology and stock market bubble — a slump Mr. Gilmore simply denied.
In Mr. Gilmore, Virginia had its very own Herbert Hoover. “State government is in sound financial shape,” he declared sunnily in August 2001, even as state lawmakers from both parties predicted a $500 million revenue shortfall in the commonwealth’s $25 billion budget — about 10 times Mr. Gilmore’s own projections and, as it turned out, itself an underestimation of the state’s actual woes. Mr. Gilmore’s allies
sometimes argue that no one could have foreseen the economic effects of the Sept. 11 attacks, which occurred four months before he left office. True enough, but also irrelevant: The problem had swollen to major proportions well before the attacks, and Mr. Gilmore ignored it.
He did so in part by budgetary gimmickry and sleight of hand of the sort seldom seen in Virginia, with its stodgy custom of fiscal prudence. When it became plain that the state’s revenue growth had hit a wall, a condition that Mr. Gilmore himself had said would preclude a further rollback of the car tax, he proposed a novel solution: conjuring revenue by borrowing against a one-time legal settlement with tobacco companies. That scheme, which encapsulated Mr. Gilmore’s poor judgment and fondness for budgetary trickery, elicited groans from Republican and Democratic lawmakers alike.
Today, Mr. Gilmore innocently states that on leaving office in 2002 he bequeathed a balanced budget and $1 billion in reserves. But the balanced budget was a fiction that papered over a yawning deficit with shenanigans such as requiring retailers to prepay their sales tax and employers to prepay their withholding tax. And the reserves, for which Mr. Gilmore bears no responsibility — they were statutorily required — did nothing to forestall the state’s fiscal crisis. It fell to Mr. Warner, who succeeded Mr. Gilmore as governor, to fix what quickly mushroomed to a nearly $4 billion problem.

Wow.

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