Even “progressives’ dream governor” learns tax hikes don’t solve all

The people who advocate for only transit and not one more mile of road are fond of saying, “You can’t build your way out of congestion.” Their contention, repeated often, is that “demand” for the roadway from growth and from improved traffic flows will mean the roadway will quickly fill in and traffic will be just as bad as before. The demand will always be there and thus always consume the good.

Which makes you wonder: could that same crowd concede the same thing about taxes?

Isn’t that another area where “demand” will always quickly outstrip any new capacity? No matter how high taxes rise, there are always “needs” that will soon eat up the rise in revenues.

It’s consistent. It’s predictable. It’s true. Without spending discipline and prioritization, even a high-tax state will soon run out of money.

Progressive governor realizes tax increases don’t solve all
Just ask Dannel Malloy, the Democratic governor of Connecticut. Until recently, Malloy has been a darling of the progressive Left. He has upped the state’s minimum wage, instituted paid sick leave mandates, increased personal income taxes, pushed large tax hikes on businesses, and boosted state employee pension funding.

[Sidebar: When Connecticut instituted a state income tax in 1991, the top rate was 1.5%. 25 years later the top rate is 6.5%. Washington voters, in repeatedly rejecting an income tax, clearly intuit this fact: no matter what rate an income tax starts at, it will go up.]

Malloy doesn’t repudiate his previous moves, but he does recognize that continuing to simply raise taxes doesn’t solve the state’s spending problem. This year he rejected calls for another round of tax increases, and trimmed spending and the state workforce instead. That has angered his progressive base.

“I’ve raised taxes multiple times. It’s not working,” he said at a town hall event earlier this year. “And it’s come up a cropper.”

Downsides to tax increases aren’t theoretical
That’s because, without taming the spending beast, the increased revenues from tax increases are quickly exhausted. And tax hikes have real-world consequences. Carol Platt Liebau of the Yankee Institute for Public Policy surveys the damage:

“The state’s tax base is crumbling. Its population is shrinking — Connecticut had a net loss of 44,000 people and $5 billion in taxable income between 2011 and 2014. Business starts are down, and move-outs are up.”

Having now governed in fact and not just in theory, this is a reality Malloy concedes. “At some point, you simply can’t raise taxes to an extent that you price yourself out of the market,” he told The Atlantic. Perhaps this is the “governing in prose” Mario Cuomo was talking about.

Looking at our state, it’s easy to see how tax increases would be quickly gobbled up. The McCleary decision must be met, and the state’s mental health system, including Western State Hospital, must be bolstered. The culverts lawsuit pursued by some tribes will cost serious money. Sound Transit has a $54 billion light rail package on the ballot. Various advocates want statewide preschool, more wind and solar energy, and ever-larger parks and library levies, school bonds, affordable housing levies…the list goes on.

But there is simply no substitute for prioritization and spending discipline, as Connecticut’s example reminds us. There is an upper limit to tax increases before the consequences get just a little too real, even for the “progressives’ dream governor.” Gov. Malloy can tell you all about that.
-Rob McKenna

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Rob McKenna
Rob served two terms as Washington’s Attorney General, from 2005 to 2013. He successfully argued three cases before the U.S. Supreme Court and negotiated three of the largest consumer financial protection settlements in national history, all involving mortgage lending and servicing. He is a recognized leader in the development of consumer protections on the internet, in data protection and privacy regulation.