Economy looms over campaigns
Recession risk, gasoline and diesel price hikes, inflation surge will weigh heavily in November
NEW HAVEN — With inflation raging, gasoline prices spiking, and the stock market tanking, the downbeat economic stew could have a major impact on the November elections.
The latest economic hit in Connecticut is an additional tax of 9 cents per gallon on diesel fuel on July 1 that economists and politicians say will have a negative ripple effect on small businesses and consumers.
As a former business entrepreneur and Greenwich multi-millionaire, Gov. Ned Lamont follows the stock market and financial trends closely on a daily basis — and is highly concerned about the economic ripple effect.
“We’re going to have a recession, and that recession is going to impact our revenues and drive up some of our costs,’’ Lamont told the Courant in an interview. “So everybody that wants to increase spending and slash more taxes is just creating another one of those cliffs that we all fall off every five years in this state. I’m not going to let that happen. I’ve got the biggest tax cut in the history of the state, but I’ve done it in a way that’s sustainable. I’ve done it in the way that if we have a normal recession, we don’t have to raise anybody’s taxes, and I don’t have to slash anybody’s education funding.’’
Asked when the recession will occur, Lamont said, “I don’t know. I know I have a fiscal year that starts in three weeks. So I have to plan up to July 1, 2023, and that’s what our budget has done, and I want to make sure it’s in balance at the end of the year and not just on this July 1.’’
With the volatile stock market entering a bear market by being down more than 20%, the United States could hit its first recession since the Great Recession from December 2007 to June 2009. The Nasdaq composite index that includes many high-technology stocks closed Friday at 33% below its all-time record, and the broader S&P 500 index is 23% below its peak.
Economists often argue when a recession starts, and the answer usually comes out later when after-the-fact statistics are calculated.
Republicans and Democrats have been battling over whether the state should suspend the diesel tax, which will be 49 cents per gallon on July 1, entirely until the end of the year, along with a series of other tax breaks. Lamont argues that the legislature already approved more than $600 million in tax breaks on cars, gasoline, and property, while Republicans say Connecticut’s rainy day fund of $3.5 billion shows the state can afford to give $1 billion in tax breaks at a time when many families are struggling with inflation at 8.6%.
Besides disagreeing on the numbers, Republicans and Democrats disagree over who should be blamed for inflation and the economy, which will be major issues for nearly five months heading into the November elections.
Republican gubernatorial candidate Bob Stefanowski says the two main reasons for inflation in Connecticut are President Joe Biden and Lamont. Stefanowski constantly refers to “Biden-Lamont inflation,’’ and that phrase is likely to be repeated often during television commercials and on the campaign trail.
Lamont has repeatedly rejected calls for cuts in the diesel tax, saying half of the revenues are paid by out-ofstate tractor trailer trucks, instead of Connecticut residents. Diesel fuel has been selling recently for an average of $6.16 per gallon, while
regular gasoline has been at nearly $5 per gallon
“You’re going to hear a lot of excuses coming out of that office,’’ Stefanowski said of Lamont. “‘Well, it’s really not Connecticut. It’s out of state tractor trailers.’ Wrong. We’re going to hear that it was already scheduled, and there was nothing he could do about it. Wrong . ... The impacts of diesel go all the way through our economy.’’
He added, “To be sitting on a $3.5 billion rainy day fund when it is pouring rain right now on every single small business and every single person in Connecticut is absolutely unconscionable.’’
Stefanowski appeared in Shelton recently outside Fire Engine Pizza Co., where co-owner and head chef Phil Segneri stood in front of a fire truck that contains two pizza ovens and travels around the state for large catering parties. With a labor shortage, he says he could hire an additional 15 workers but is having trouble finding them.
“The employees need more money for fuel, which means they’re going to need more money for pay,’’ Segneri said. “All of this adds up. Trucking, the fuel costs . ... The diesel tax will translate to a higher price for private parties for this truck. I can’t say we’re going to raise pizza a dollar a pizza. We’re not there yet. At some point, it will translate to an increase in price.’’
State Rep. David Rutigliano, a Trumbull Republican and chef who owns six restaurants, said the cost of the food ingredients are directly impacted by the diesel tax.
“There’s not one thing that we buy that didn’t come on a truck,’’ Rutigliano said. “You’re charging the truck that’s bringing in the produce, and now you’re also charging the truck that’s taking it from the warehouse and bringing it to us. This isn’t some nameless, faceless tractor trailer. It’s actually delivering stuff that everybody needs. It’s not just restaurants. Go to the supermarket. It’s expensive.
While Republicans blame Lamont, the governor has a sharply different view on economic blame. He and some investors point the finger at the Federal Reserve Board, which recently hiked interest rates by an additional 0.75%, as a big player in the equation.
“If I had to rank why we have inflation, I think [Fed chairman] Jerome Powell should have acted a lot sooner,’’ Lamont told the Courant in an interview. “I think Vladimir Putin is driving up the price of oil. He’s also driving up the price of grain because of what’s going on in Ukraine.’’
Lamont said that he purposely avoided cutting the diesel tax this year and instead offered tax cuts that go directly to consumers by increasing the property tax credit to a maximum of $300 per tax return, a new child tax credit, and an increased earned income tax credit, among others.
“Let’s say diesel — maybe they would pass along a few cents to people,’’ Lamont said. “They’ve got the highest profits in their history, so maybe they would add to their profits that they’ve already got now. I’ve got a different strategy — trying to provide support directly to people and small businesses. No middleman is going to take that profit and put it in their back pocket, so that’s why we’ve got the tax cuts that you know about.’’
Asked about Republican calls for a special legislative session for additional tax cuts in the coming months, Lamont said, “They don’t want to pay down the pensions. They never did. They all opposed $650 million in tax cuts that are going to affect people starting in the next 60 days. That was their chance to step up. We made a difference. It’s going into effect right now.’’
With the start of the new fiscal year on July 1, Lamont points to the overall tax-cut package that includes cutting car taxes in about 75 of the state’s 169 cities and towns. Communities with a mill rate higher than 32.46 will benefit, but there will be no relief for wealthy, low-taxrate towns like Greenwich, New Canaan, Darien and Westport. Besides Hartford and East Hartford, communities that will receive assistance include West Hartford, Waterbury, Bridgeport, New Haven and others.
For towns with a mill rate of 50, for example, the rate for drivers would be reduced to 32.46, and the state has pledged to reimburse the towns to make up for the tax revenues that the towns will lose.
But Lamont did not rule out further tax cuts in the future, but he first wants to see how the economy develops.
“Let me take a look later on. Remember, I could do a little less pension,’’ Lamont said. “I think we made a good balance, and that’s going to save us hundreds of millions of dollars going forward. If I’ve got to do more, we’ll do more, but let’s give it some time right now.’’
Speaking to senior citizens in recent days in New Haven, Lamont responded to an elderly woman who thanked him for making the public buses free through Dec. 1.
“Look, inflation is crushing people,’’ Lamont told the outdoor crowd of seniors in a courtyard. “It’s incredibly expensive. Everyone likes to blame somebody, but more importantly, what can I as a governor do about it to make life a little bit more affordable? ... If the drivers are getting a little bit of a break, how about the folks who take the bus? I think it makes all the sense in the world for those buses to be free. If I can keep it going [for free buses], I think I will.’’
While many consumers are concerned about filling up their gas tanks in the short term, the state’s top business lobby says the key to the economy is making sure the state has enough qualified candidates for jobs.
“Connecticut’s year to date job growth is 0.8%, which is half that of the national rate and the lowest in New England,” said Chris DiPentima, president and chief executive officer of the Connecticut Business & Industry Association. “The state’s unemployment rate is 4.2% and remains one of the highest in the region. However, even if every unemployed person found a job, we would still have 31,300 left to fill. CBIA urges lawmakers to focus on attracting and keeping skilled workers by making it easier to obtain occupational licenses in Connecticut, exploring ways to become a more immigrant-friendly state, and keeping college students here following graduation.’’
While Lamont expects a recession, Biden say he does not. In an interview with Associated Press, Biden said a recession is “not inevitable’’ and blasted the often-repeated notion that the $1.9 trillion in federal money to combat the coronavirus pandemic had led directly to inflation at a 40-year high.
He conceded, though, that the ongoing economic problems have made the American people “really, really down’’ as they battle with inflation and hope to avoid a recession.
“First of all, it’s not inevitable,” Biden said of recession. “Secondly, we’re in a stronger position than any nation in the world to overcome this inflation . ... Be confident, because I am confident we’re better positioned than any country in the world to own the second quarter of the 21st century. That’s not hyperbole. That’s a fact.’’
Longtime economist Don Klepper-Smith, who chaired an economic advisory panel under then-Gov. M. Jodi Rell, said the continuing economic problems have increased the chances of a recession to 66%, up from his previous prediction of a 50-50 chance.
“This increase in diesel taxes couldn’t come at a worse possible time,’’ Klepper-Smith said in an interview. “Inevitably, it means the cost of goods and services — apparel, food — is going to increase prices across Connecticut for the next six to 12 months — at the worst possible time. When you start talking about Ukraine and higher gas prices, as we head into the fall, my concern is these higher prices are going to siphon off discretionary income and consumer spending power at a time when it’s needed the most.’’
Looking ahead, Klepper-Smith does not see any immediate relief for consumers.
“This is shaping up as a difficult holiday shopping season as we head into the fall,’’ he said. “Inflation doesn’t measure the cost of living anymore. It measures the cost of surviving . ... This is not a temporary inflationary surge. It is probably going to be with us for a while.’’