Connecticut Debt Crisis

Hello Dr. Wolff, Would you please address the Connecticut debt crisis? For a state with numerous insurance and other Fortune 500 companies and a state that is supposedly one of the wealthiest in the nation, it just doesn’t make sense. I have read numerous articles on the issue and it still does not make sense. Thanks!

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  • Nicholas Anderson
    commented 2018-01-08 22:42:07 -0500
    Hello Alhagi,

    CT’s budget deficit is a result of a conflux of politically and financially driven decisions that have created a series of crisis’s that on the surface seem separate, but are intrinsically feeding each other. The crux of the problem is that the state speculated that providing corporate tax shelters and subsidies would encourage economic growth. These businesses such as Pfizer took advantage of these low or nonexistent taxrates until they expired, and then closed or moved these locations costing thousands of well paying jobs. This is not unique in any way from other states. It typifies the “race to the bottom” competitive mantra that defines interstate competition. However, what is relatively unique is the surrounding circumstances, namely the high income and property taxes that predate both these subsidies and the housing-crisis. However, income taxes could be avoided by the wealthy in several ways, the most obvious being out of state residency, the use of hedge funds/capital gains and bonds. This left the middle-class and the poor feeling the brunt of funding the state revenue and by extension corporate subsidies. Enter the housing crisis, which crippled not only the value of the property owned by everyone(and thereby the municipalities that relied on property tax), but pushed homeowners underwater on the value of their primary assets. Not only could these owners not borrow on the equity of their houses, but they placed in a financial situation where they owed too much on the home to leave and could not afford to stay. Young people on the other hand, having no such financial commitments or assets and facing declining job prospects and rising student debt began to migrate in massive numbers to the west and the south. So now the state has an issue. It is steadily losing population, jobs and tax dollars while the average age of Connecticut residents slowly rises and pensions and retirement plans are starting to come due. The middleclass residents that do still reside in the state are still underwater on their assets and can’t afford a tax hike to cover the deficit spending for corporate subsidies that resulted in an employment slump after they abandoned the state for better subsidies elsewhere, while the bulk of the population that can afford a tax hike has abused legal loopholes to prevent their assets from being subject to taxation. Worse this class of people are the primary funding for political campaigns, so amending these loopholes is political suicide. Conservatives say that the taxes are the problem; Liberals that it’s the massive inequality. The reality is that they are both right and that they are both wrong. The high taxes effected only those who could not find an avenue around them(the middleclass and the poor), in order to subsidize corporate welfare that ultimately undermined job growth. This fueled inequality.
  • Alhaji Conteh
    published this page in Ask Prof. Wolff 2018-01-06 20:56:44 -0500