Why Tax Hikes Must Be Avoided

Connecticut is seven weeks into the 2018 fiscal year and still without a new state budget.
Although the legislature in July approved a state employee concessions deal worth an estimated $1.57 billion in savings, agreement to close the two-year budget gap that remains—more than $3.5 billion—has proven elusive.

That’s not to say that various plans haven’t been proposed, including on the revenue side, where House Democrats recommended a 10% sales tax hike—from 6.35% to 6.99%—which would raise around $900 million over two years.
If we’ve learned anything from recent history, however, it’s that raising taxes as a means of solving fiscal problems has not worked in Connecticut.
In fact, it’s made things worse.

History Repeats?

After two of the largest tax hikes in the state’s history in the last six years, we’re still facing mammoth near-term shortfalls and long-term unfunded liabilities, and our post-recession economic and job growth lags much of the nation.
Two iconic Connecticut corporations—GE and Aetna—are moving their headquarters to other states, and recent reports show that wealth is leaving the state along with young, educated adults—and they’re not being replaced.
Some say increasing the state sales tax would not exacerbate these woes, but they’re missing some important points.

Not only would such a tax hit all individual consumers hard, studies show that the state's businesses—as consumers themselves—pay 40%-45% of state sales taxes.
The proposed increase would, therefore, drive up costs on Connecticut's job creators significantly just when we're starting to see momentum on the jobs front.

National Scrutiny

In addition, we already tax more services in Connecticut than do many other states.
From conversations I've had recently with friends, family, and colleagues from other business associations around the country, it's clear that Connecticut's fiscal troubles have put the state under heightened scrutiny.
The question now is, 'How will we respond?'
The answer is not only important from a budgetary standpoint or because it will affect the cost of living and operating a business here.
We also have an opportunity to send a strong message to the rest of the country: If we truly can solve our fiscal problems by adopting structural spending reforms without resorting to broad-based tax increases, it will show Connecticut really has changed direction—and that's a good thing.

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About the author: Joe Brennan is CBIA's president and CEO.