Proposed Budget Could Spell Trouble for Connecticut Job Growth
The proposed state budget seeks to raise taxes on Connecticut business by $496 million over the next two years.
There’s a ripple effect here.
The lion’s share of these taxes hit firms that invest in Connecticut. These are businesses that innovate, develop new medicines, create technological advances, and improve financial services.
And who are businesses without the people who work for them?
The reason these proposed tax hikes really matter is that Connecticut is on the cusp of a life-improving job-creating growth spurt: some of which was generated by the very tax incentives that are now in danger.
The industries most affected by the proposed job-constraining tax changes: manufacturing, financial services, and bioscience: have job multiplier effects of anywhere from two to seven. Think about it: Every job they create in their industry adds one to six additional jobs throughout Connecticut’s economy.
You may not directly work for one of these firms, but your success as a real estate agent, service worker, car mechanic, copier salesperson, builder, retailer, restaurateur, carpenter, and so on depends on output from these economic powerhouses. All these activities will feel it when companies that are directly affected pull back operations and investment in Connecticut in favor of other states that have a more stable and strategic tax policy.
The bottom line: erosion: fewer jobs, less economic activity, fewer spinoff jobs.
Over the past several years, Connecticut has crafted a tax policy built upon stimulating research and development (R&D), the financial and real estate sector, and encouraging other business activities viewed as valuable to the state. The tax incentives behind this tax policy are not “loopholes,” which are unintended consequences; they are designed to spur the intended consequences of activities that generate revenue in the long run.
The R&D tax credits, for example, have been instrumental in the growth of Connecticut’s bioscience industry: which spends billions of dollars annually in our state. Under the current tax law, a bioscience startup would very likely develop in Connecticut, producing high-paying jobs, a high multiplier, a lot of economic activity: buying homes, buying cars, buying business services, buying commercial or industrial space: affecting a lot of people’s jobs who are not directly employed in that industry. A company like that could also give rise to a family foundation or other charitable contributions that benefit our state.
The impact on Connecticut manufacturers is critical too.
New products command premium prices in the global market. In a high-cost state like ours, take away the R&D incentive and other incentives and companies may choose to locate their R&D, their operations, their production elsewhere.
Connecticut’s proposed budget hits the very industries that can power real economic growth in the next decade: companies that can provide jobs for current residents, for kids coming out of schools in Connecticut, for folks in other industries that supply these companies and serve their employees.
It’s a stealth effect, but it’s across the board, and it’s real.
The tax increases may speak of “corporate credits,” and “carry-forwards,” but Connecticut’s tax strategy was developed with good reason, and after much study, by state legislators and governors who wanted to create incentives for businesses to grow and create solid middle-class job opportunities. They are specific tools to build an economy that employs a highly educated, skilled workforce. These were not developed on a whim as loopholes or gifts.
Over this biennium, the state might find an initial savings by slashing these incentives. But over time, as business operations look elsewhere, revenues may erode.
Connecticut is the #4 state in the nation in terms of job-creating R&D investment. Let’s not risk losing major portions of our state’s economy that we built upon the very strategic and intentional tax policies that are now at risk.
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