Economist says state income tax cut has been 'more' than offset by inflation, tariffs

By Scott Benjamin

If three years ago they trimmed income tax rates in the Land Of Steady Habits for the first time since Leno initially surged past Letterman in the late night Nielsens, then how come “half” of the residents surveyed in the Nutmeg State Poll “say they are worse off financially than a year ago?”

Economist Donald Klepper-Smith of DataCore Partners says Connecticut’s income tax reduction for the middle and lower classes “is more than offset by tariffs and inflation.”

He added that Republican President Donald Trump is “cutting back aid to Democrats states.”

In response, Matt Corey, the Republican candidate for lieutenant governor, stated in an e-mail interview, “We should protect assistance for people who legitimately qualify for it, and taxpayers should expect strong safeguards against waste, abuse and fraud.”

“The federal government has raised serious concerns about improper payments and benefit-program integrity. Connecticut has challenged some of the federal government’s requests for recipient data, citing privacy concerns, while at the same time using state taxpayer dollars to offset some federal benefit reductions,” wrote Corey.

“My question is simple: before Connecticut replaces federal dollars with state dollars, have we done everything we reasonably can to verify eligibility, prevent duplicate or improper payments, and make sure the money is reaching the “people the program was actually designed to help?” he added.

Noted for PowerPoint slide shows that are dotted with charts, graphs and quotes, Klepper-Smith was chairman of former Gov. M. Jodi Rell’s (R-Brookfield) economic team.

In a phone interview with Patch.com, Klepper-Smith exclaimed that “the amount of misinformation” from federal budget sources is “unique.”

It is as though it was written by Harry The Hat.

The federal government reports that inflation is 3.4 percent. Klepper-Smith contends that data from economists working in the private sector peg it closer to 12 percent.

“The key data sets that matter to us, point to a recession,” asserted Klepper-Smith. “What does that do to the holiday shopping season.”

In his most recent newsletter, he stated, “The current landscape of partisan politics means objective economic analysis has become more elusive, and left unattended, these misperceptions often turn into “facts” in people's minds. As a math-trained analyst, the overall level of misperception and spin in the current cycle is at an unprecedented level and I’d say that most people are generally unaware or confused as to the true health of the U.S. economy.”

Klepper-Smith said economist Mark Zandi of Moody Analytics deserves a curtain call from the visiting fans.

“He is the best economist in the United States,” Klepper-Smith asserted. He explained that Zandi “has 200 economists working for him. I think he has been able to collect data at a more detailed level and objectively tell the story without political influence. He has correctly said that the federal government has overstated the strength of the labor market.”

The Federal Reserve Board just raised interest rates for the first time in three years to try to tackle inflation.

Was that the right move?

"The Fed has clearly been behind the curve since underlying inflation is much higher than is being reported and more is in the pipeline.” stated Klepper-Smith. “Producer prices are accelerating and I fear that $4 gas may be here with us for a while. Diesel at $6+ means that those higher costs of transporting food and goods will inevitably be passed along to consumers. No question. Changes in monetary policy usually take 9 to 12 months to be fully realized."

Plus, after becoming engaged in a trade arm-wrestle with Canada, there are fewer tourists traveling south of the border to buy antique Knick knacks at stores from Anchorage to Kennebunkport.

Economist David Hebert of the American Institute for Economic Research has stated that when the economy descends elected officials want to help buyers but ignore producers. He stated that “boosting demand won’t fix affordability.”

Said Klepper-Smith, “The producer costs will show up in the consumer market eventually. The cost of doing business is responsible for 40 percent of your economic growth. Connecticut is the fifth most expensive place to do business in the country.”

The trustees for Social Security warn that it will become insolvent in 2032 without reforms.

Wall Street Journal Street Journal columnist Joseph C. Sternberg has stated that Social Security is the biggest line item in the federal budget.

He has argued against increasing the payroll tax cap, which currently stands at $184,500 of income, warning that it would be the largest tax increase since 1982.

However, in 2008 while campaigning for the Democratic presidential nomination, Barack Obama called for it to be increased to $250,000. Obama said the current system is unfair.

Klepper-Smith stated that “the lack of political collaboration makes it difficult to make meaningful changes until it becomes a crisis situation. To me, if you’re not proactive now with incremental and meaningful changes to benefits and revenue raising measures to keep it solvent, then your options become limited. Therefore, lifting the payroll tax cap has to be on the table.”

Klepper-Smith said that employees are justifiably concerned about the future of their jobs.

He pointed to the recent Price Cooper Waterhouse report that artificial intelligence could replace“30 to 40 percent” of non-farm jobs between 2030 and 2039.

When he was running for lieutenant governor in 2010, then-Danbury Republican Mayor Mark Boughton said that in 2007 credit card debt had reached unprecedented highs in 2007 and people were now again putting more money in their savings.

Klepper-Smith said a recent New York Fed Consumer Credit Panel report indicated that housing, student loan and auto loan debt now exceeded the levels from 2007.

“It is the same thing in the private sector,” he remarked. “There’s not enough savings and too much consumption.”

Yahoo Finance has reported that Treasury Secretary Scott Bessent told the House Financial Services Committee whether the Treasury's decision to buy back $6 billion in long-dated government bonds was successful, given that the yield on the 10-year Treasury bond has risen since then.

Klepper-Smith said he questions the success of the buy back.

“I think the treasury is stuck between a rock and a hard place,” he exclaimed.

A decade ago when former Ohio Gov. John Kasich posted a debt scoreboard as he campaigned for the Republican presidential nomination, the federal debt was just over $19 trillion. Now it is above $40 trillion.

Klepper-Smith declared, “It illustrates that we’re in a fiscal standpoint that continues to erode. The payments are now exceeding the entire U.S. Defense budget. That says volumes to me. It is driving up interest rates. With weaker economic growth there usually is less lending.”

U.S. Rep. Jim Himes (D-4) of Greenwich has called for a commission to make recommendations on reducing the debt. It would be similar to the Simpson-Bowles Commission that Democrat former President Barack Obama appointed. That panel didn’t meet the threshold to submit its recommendations to Congress.

Klepper-Smith said he supports appointing a commission, adding, “Nothing will get done without a bipartisan effort,”

Richard Rubin and Justin Lahart of The Wall Stret Journal reported :that Bessent said at Southern Methodist University in Texas that with a “three percent” growth in gross domestic product the federal government can reduce the debt.

Bessent said that the economy was on that path before Trump launched Operation Epic Fury in Iran in February.

Klepper-Smith asserted, “Debt to GDP ratio is now 122% and rising. It's a folly to think we can outgrow our debt situation.”

Resources:

Phone interview, Donald Kelpper-Smith, Patch.com, on Friday, September 11, 2026.

Phone interview with Donald Klepper-Smith, Patch.com, on Tuesday, September 15, 2026.

E-mail interview with Donald Klepper-Smith, Patch.com, on Wednesday, September 16, 2026.

E-mail interview with Donald Klepper-Smith, Patch.com, on Thursday, September 17, 2026

E-mail interview with Matt Corey, Patch.com, on Friday, September 18, 2026.

https://finance.yahoo.com/economy/policy/article/bessent-calls-treasury-bond-buyback-successful-reiterates-he-has-tools-to-stabilize-bond-market-190005670.html

https://www.wsj.com/economy/federal-debt-growth-solution-c2868517

https://www.wsj.com/opinion/boosting-demand-wont-fix-affordability-7729650c

https://scholars.unh.edu/nutmeg_state_poll/

https://www.usatoday.com/story/news/politics/elections/2026/09/16/social-security-reform-midterm-elections-2026/91759449007/

Interview, Mark Boughton, New Milford Republican Ronald Reagan Dinner, September 2010.

https://www.wsj.com/opinion/republicans-pre-emptive-social-security-surrender-8f66c430?mod=author_content_page_1_pos_1