Publius provided the link to this WSJ article. Connecticut Democrats, eying the last viable business in the state, move to enact a hedge fund tax.
Connecticut Democrats are taking aim at its hedge fund industry with a proposed tax increase, as the state seeks ways to close a $1.5 billion budget deficit.
Democratic lawmakers plan to introduce legislation Tuesday that would impose a new 19% state surcharge on investment management service fees, also known as carried interest. Currently only the federal government taxes carried interest, not the state.
State Rep. Robyn Porter, a Democrat, said introducing this new surcharge could bring in $535 million annually in new state revenue at a time when Connecticut faces big budget shortfalls. The move sets up a battle with Democratic Governor Dannel Malloy who has pledged not to raise taxes, looking instead to cut expenditure.
“We aren’t going to be able to cut our way out of this,” said Ms. Porter, one of the lead lawmakers behind the proposal with more than 30 co-sponsors.
Mr. Malloy, a Democrat, plans to present his plan to close the $1.5 billion budget deficit on February 8. Fixed costs like pension contributions and debt payments now make up more than half of the state budget, up from 37% in 2006, according to the state’s Office of Fiscal Analysis. The state’s fixed costs are rising at a time when its income and sale tax revenue growth has slowed, leading to annual yawning budget gaps.
Liberal Democrats and other progressive groups say the state can’t afford more cuts to social service programs when the state has already reduced funding for mental health services and hospitals. They are calling on the governor to consider other alternatives.
“You cannot solve this problem without revenue,” said Lindsay Farrell, executive director of the Connecticut Working Families Party.
State Sen. L. Scott Frantz, a Republican, said the proposal would send a chilling effect throughout the investment-management industry in Connecticut that would cause the state’s richest residents to flee for other places with friendlier taxes.
There are about 450 hedge funds in the state, according to the Connecticut Hedge Fund Association.
“Every year there is typically one bill that stands out as the worst in the entire group of 14,000 bills that are introduced,” said Mr. Frantz, who represents Greenwich, the center of the state’s hedge fund industry. “This is a strong candidate.”
Despite the hyperbole in my own headline, this really isn't that big a story, because, as we've been writing here for several years, the Democrats have always used the financial industry and Fairfield County as the state spenders' personal piggy bank, and dig deeper into the motherlode with each succeeding year, as spending continues unchecked.
You cut spending or you find new taxes. Cut spending, you lose your base. Raise taxes on people who already aren't voting for you, what have you lost? Until the victims flee your jurisdiction, of course, but that's down the road, and politicians don't have that kind of horizon.
UPDATE: I came across this article about Miss Lindsay Farrell, Connecticut Working Families [sic] organizer from back in 2012, when she and her SIEU colleagues were demanding that GE pay more taxes. Were she to try to hold a similar demonstration today, of course, Miss Farrell would have to travel to Massachusetts.