Stefanowski is tying Lamont to rising costs. But do governors have a role in fighting inflation?

Back • Publication Date: July 18, 2022 • Fiscal & Economics

With rising prices squeezing Connecticut families to the tune of hundreds or even thousands of dollars a month, inflation has become key fodder for Republicans seeking to make inroads across Connecticut, especially in the closely-watched rematch between Gov. Ned Lamont and rival Bob Stefanowski.

Stefanowski has taken to the airwaves and social media with a fervor this summer, depicting inflation as a result of Lamont and Democratic President Joe Biden’s policies, while promising to cut taxes in order to lower costs on everything from gas to groceries.

Experts who study inflation and the burden it places on families, however, say that criticism ignores the complex web of factors that have spurred rising prices and a shortage of goods — especially amid the pandemic — while overstating the ability of governors to manage the local economy.

Fred Carstensen, a professor of finance and economics at the University of Connecticut, said that inflation is largely driven by global factors, among them a war in Europe’s breadbasket and gas corridor, shipping delays caused by the pandemic in China, and industrial consolidation in the U.S. that has allowed companies to raise prices.

“The answer is Governors and state government in general have no ability to impact meaningfully the rate of inflation,” Carstensen said in an email. “Even the federal government has very limited ability, especially in the short run.”

Adding to the notion that local governments have little to do with inflation, experts note that Connecticut is hardly alone in experiencing costly price increases.

Across the United States, consumer prices rose by 9.1 percent in June, the highest rate in four decades. But on a global scale, Americans were roughly in the middle of the pack in terms of how fast prices have shot up since the beginning of the pandemic, according to Pew Research.

Republicans have charged that the trillions of dollars pumped into the economy through Biden’s stimulus and infrastructure bills are behind inflation, with some support among economists, who also point to supply chain disruptions globally as a major contributor.

“One of the primary causes of inflation is excessive government spending,” Stefanowski’s campaign said in response to questions about his inflation claims. “Not only has Governor Lamont fully supported President Biden and his excessive spending at a national level, he increased state spending by over $1,000 per person or over $3.0 billion in total.”

The Republican’s campaign website touts a plan for lowering costs on consumers exclusively through a round of cuts to the state’s sales tax and commercial taxes on truckers and other small businesses, along with a suspension of the tax on gas and diesel, and eliminating the tax on groceries.

“We need a bottom-up approach to economic prosperity in Connecticut, and that means letting people keep their money before politicians get their hands on it,” Stefanowski’s website states.

Stefanowski has also criticized Lamont — who suspended the state’s gas tax as prices surpassed $4 a gallon in April — for not taking further steps such as suspending the tax on diesel fuel. Prices for regular gasoline now average $4.55 in Connecticut, while the average for a gallon of diesel is $5.79, though prices have fallen in recent weeks despite a recent increase in the diesel tax.

In response to those criticisms, Lamont’s campaign pointed to the governor’s increase of the earned-income tax creditchild tax rebates and lowering of property taxes as examples of policies that have put money back in families’ pockets during soaring inflation.

“With too many families feeling the impact of higher costs, Governor Lamont acted quickly to give middle-class earners a raise and real relief,” the governor’s campaign said in a statement. “His budget puts more money in the pockets of families across Connecticut and by passing the largest tax cut in state history, he lowered the gas, car, and property taxes—which families are feeling now.”

“No matter how Bob tries to deceive Connecticut voters, they know that Governor Lamont is delivering real relief for their families when they need it most,” the campaign added.

Some experts argue however that tax breaks — whether through tax cuts championed by Republicans or rebates often utilized by Democrats — are actually counter-intuitive to keeping inflation under control.

“It’s probably exactly the wrong thing to do,” said Steven Lanza, an associate professor of economics at UConn, noting that the Federal Reserve is taking the opposite approach by raising interest rates.

“The Fed is trying to tamp down the economy, cool it off, cut back on spending,” Lanza explained. “And if you give tax breaks to consumers, they’re gonna love it. I mean, the idea is, ‘Ah, this is relief from prices,’ But then what does it do? It frees up resources for people to go out and continue to spend more and that’s not what you want folks to be doing right now.”

While economists argue how much of an impact federal policy may have during periods of global inflation, experts in Connecticut said that even those policy debates occupy a realm well beyond the reach of state governments.

While Lanza said that the intensity and duration of the current inflationary period has surprised many economists, the root cause of the price increases stems from basic changes to supply and demand that occurred simultaneously as COVID-19 swept through the world.

“People weren’t able to spend their money during the pandemic, they didn’t go anywhere, they saved a lot,” Lanza said. “And now, all they want to do is kind of get out in the real world, and have experiences that they weren’t able to have during the pandemic. So you have a big increase on the demand side of the economy, at the same time, that we’re still trying to resolve supply chain shortages and, and that sort of stuff.”

One state-level policy that some experts say can help blunt the impact of inflation on families — while not directly affecting prices of goods and services — is adjusting the state’s income tax to inflation, which the majority of states with an income tax already do.

Patrick O’Brien, the research and policy director for Connecticut Voices for Children, said that middle-income families are now paying several thousand dollars a year more in income taxes than they would be had lawmakers indexed the tax to inflation when it was created in 1991.

“Even the families that have gotten a raise to keep up with inflation, or exceeded inflation, are now being taxed as if their standard of living has actually increased, whereas they’ve just gotten a cost-of-living adjustment,” O’Brien said.

Neither Lamont nor Stefanowski have committed to supporting an inflation adjustment for the state’s income tax. When asked about the policy on Friday, spokespeople for both candidates pointed to their support for alternate proposals.

“I fully support the idea of lowering the income tax for working middle class families,” Stefanowski said in a statement released through a spokeswoman. “But Connecticut families need relief now, not when they file their tax returns next April.”

Max Reiss, a spokesman for Lamont’s office, declined to say how the governor would view such a policy absent a specific proposal. He noted that the governor has supported indexing both unemployment benefits and the state’s minimum wage to account for inflation.

“Our administration all along has been searching for ways to make sure we are adequately putting money back into people’s pockets and remaining current,” with rising costs, Reiss said.

Authors: John Moritz, Jordan Nathaniel Fenster •  Source: CT Post • View