A Connecticut tax compromise for both sides
Jun 27, 2022
As is often heard from Democrats over the past several years, people, corporations, businesses, need to pay their fair share of taxes. Of course, “fair” is in the eye of the beholder. Without getting into whether it is fair to tax higher-income people, especially very high-income people, more than they already are being taxed, it is certainly a growing portion of Democratic policy and beliefs.
At the same time, Republicans complain about a never-ending appetite for spending (therefore for raising taxes and revenue) from Democrats. A component of this complaint is that there is no end game. It’s always more with no end in sight mentioned, such as “if we only got to X% rate and $Y, all would be well.” Maybe some skepticism would be allayed if that were the case.
One of the Republican points is that taxing is bad for the economy and bad for business since it drives up the cost of doing business in Connecticut and states compete with one another. There are no higher-profile cases than sports stadiums where cities outbid each other for the privilege of hosting a professional team.
Some might remember the embarrassing “Hartford Patriots” deal championed by Gov. John Rowland, who tried to entice the New England Patriots to come to a new stadium in Connecticut. There was a handshake deal and many were happy in February 1999. But Patriots owner Robert Kraft played Connecticut for suckers to get a better deal from Massachusetts.
States routinely put together tax-incentive packages to attract high-profile businesses. Even with these packages, businesses may not choose Connecticut. You hear about so-called “successes,” such at the recent package given to Sikorsky Aircraft that “provides up to $75 million in performance-based incentives in the form of sales and use tax offset and tax credits.” Seems counterintuitive to provide money to businesses to make money for themselves. It’s not as though Connecticut gets profit sharing – only a guarantee of jobs, which of course the company would need to produce goods and make money anyway.
You generally don’t hear about the lack of successes Connecticut has in attracting businesses. Who would want to publicize those? Such as when high-profile General Electric moved to Boston in 2016, with Connecticut being outbid and GE citing that it was “unhappy with Connecticut’s tax policies.”
Instead of throwing money at specific businesses to try to attract them, why not create a general business-friendly climate in Connecticut that attracts businesses based on reputation. How? Eliminate all business taxes. The concept of taxing a business does not make sense when one is trying to actually attract businesses. Incentives matter.
Democrats like taxing businesses because they tend to consider businesses either a faceless entity and for more extreme Democrats, to be evil. Democrats are right and wrong about this. The Marxist/socialist belief in the state owning business sounds good in theory but has failed often with murderous dictators (Stalin, Mao Zedong, etc.) seizing control through government over all aspects of life. But they are correct when they think that big businesses engages in wrong-doing or unethical practices and need regulation (Savings and Loan Crisis, Enron, the subprime mortgage crisis, etc.) except that unethical practices and wrongdoing of some kind happen in every group. The vast majority of wrong-doing goes unreported.
But business taxes account for about 12.5% or $2.7 billion of the state budget (using FY 2020, pre-pandemic numbers) and would have to be made up for with cuts or increases in other taxes.
To avoid cuts that would be a double whammy to Democrats (and not easy), why not increase the income tax on the wealthy as Democrats have often proposed? All the money that businesses make ends up in the pockets of human beings eventually. Why not tax the individuals who receive these funds rather than the entity that is the vehicle for creating them?
The income tax makes up a bit over 45% of the budget or $9.7 billion dollars (using FY 2020). Raising the income tax by another $2.7 billion would increase the income tax percentage of the budget by another 28% to $12.4 billion or 55.7% of the budget. As with all taxation, there is no layup here. Would wealthy people leave Connecticut if their income was taxed at a higher rate? Possibly. But because theoretically, they would be making more money, they could afford higher and more, ahem, obscene salaries and benefits. But the point is that the businesses would thrive and workers would be needed, employed and making money, helping create a healthy economy.
The major upside to this idea is that it gives both sides something they want. Taxing the wealthy has not gotten traction with Gov. Ned Lamont but the General Assembly could likely pass it with a different governor, or if Lamont changes his mind. In that case, Democrats would have no incentive to give up business taxes. But until that day comes, maybe this is a win-win for both sides?
See piece on-line at The Hartford Courant
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