The two-year budget proposed today by Governor Dannel Malloy will strike a serious blow to business confidence and the state's economic recovery.
Under the Governor's $40 billion proposed budget, key investment incentives will be dramatically reduced while previously scheduled tax reductions--including the corporate tax surcharge--remain in effect.
“Although we recognize the difficult challenge facing the Governor and the legislature in closing budget deficits, we shouldn’t close gaps by inhibiting investments by the very companies that drive our economy,” CBIA president and CEO Joe Brennan said.
“The best way to grow revenues is to grow our economy. Although we have seen better job growth numbers of late, we are not reaching our full economic potential and won’t until we improve our economic competitiveness.
“By raising costs on key industries, we’re making the state less competitive.”
The proposals that increase costs on job creators would:
- Reduce the value of investment incentives for research and development, capital purchases, and other key economic drivers;
- Reduce the net operating loss carry-forward, an important tax mechanism to encourage investment in Connecticut;
- Continue indefinitely the 20% corporate tax surcharge that was scheduled to be eliminated this year;
- Continue the credit reduction for the insurance tax that was scheduled to be eliminated this year;
- Increase numerous fees paid by businesses.
In addressing projected billion-dollar deficits for each of the next two years, the Governor's plan includes raising revenues by $900 million and cutting $1.3 billion in spending. State spending would increase by 3.3% in 2016 and 3.1% the following year.
Under the Governor's plan, businesses would provide $496 million of that new revenue, even with his proposal to eliminate the business entity tax, a $250 fee levied every two years on all companies.
Malloy also wants to cut the state sales tax--increased four years ago to 6.35%--to 6.2% in November and 5.95% in 2017.
"We can pay for it by simplifying our tax code, removing some exemptions, and by reigning in loopholes and corporate tax credits," Malloy said in his address to the General Assembly.
'Reject Harmful Taxes'
"To call those loopholes is totally misleading,'' Brennan said. "They are not loopholes. They are policies adopted by a majority in the legislature and signed by a governor. ... They're not some arcane way for people to avoid paying taxes.
"It's going to be more difficult for us to attract advanced manufacturers, biopharmaceutical companies, and insurance and real estate companies that take advantage of these credits if these changes go forward."
Brennan noted that companies count on a stable tax credit system when planning and making decisions about where to locate or expand.
“If [the governor’s proposals] are bringing in more revenue through any type of change, then that is a tax increase,” he said.
“We ask the legislature to further scrutinize the proposed budget to find additional cost savings and reject these harmful tax measures.
“Connecticut can be a top destination for business but we need to encourage rather than discourage investments that lead to job creation.”
The Governor also proposed a major investment in the state's transportation infrastructure, calling for a 30-year, $100 billion plan to widen highways and roads, upgrade and build new rail lines and facilities, and expand transit systems.
He provided funding details for just the first five years of that plan, proposing $10 billion in spending, of which a third would come from the federal government, another $3.8 billion from anticipated state funding, and $2.8 billion in new state funding.
The Governor said he was forming a non-partisan commission to offer "recommendations for a sustainable structure to fund transportation over the next 30 years and beyond."