We’ve tried the old way, and it doesn’t work.
Four years ago, the General Assembly passed the largest tax hike in Connecticut history under the theory that higher revenues and a recovering economy would straighten things out.
But the tax hikes slowed our economy, causing revenues to fall short, and state spending kept growing.
So they’re back: Billion-dollar deficits.
Lawmakers are now debating another journey down the path of major state spending increases and tax hikes.
As Connecticut taxpayers already know, however, state spending and taxes are unaffordable and unsustainable.
- State government spending is up 210% 1
- Household income has increased only 64%
- Connecticut’s population has grown at only 9%
But some legislators want to try the old, failed approach again with:
- $2.5 Billion in higher taxes 2
- $1.5 Billion in additional spending 2
It’s difficult to imagine how they believe such an approach will work, especially when it was tried, and it failed.
The problem is state spending is so out of proportion to our ability to support it that some lawmakers feel compelled to try to keep pace with huge tax increases, instead of dealing with the root cause.
“The bottom line,” wrote the New London Day, “is that a tax hike of that size will hurt family budgets, businesses and the economy.”
What’s obvious is that the tax proposals being considered won’t support or sustain economic growth.
For example, SB 946 taxes more than two dozen business services—from accounting to building inspections to management consulting—that will affect every business, every consumer, every day in Connecticut.
The proposal also:
- Reduces the value of tax credits—that anchor jobs, industries, and investments in the state—from 70% to 50%; increasing taxes on Connecticut job creators by $72.5 million over the biennium
- Reduces the use of net loss carryforward (NOL)—that help vulnerable start-up companies gain a foothold—to 50% of net income in any income year; a $246 million tax increase
- Institutes mandatory combined reporting—which will impact Connecticut’s headquarters companies, and the state itself; $62 million tax increase
- Extends the corporate tax surcharge—falling on Connecticut’s flagship job creators—for at least another two years; a $119 million tax increase
- Increases the personal income tax—raising the top rate from 6.7% to 6.99%; establishing a 2% supplemental tax on capital gains over certain thresholds – potentially impacting small and family businesses, for an estimated $345 million tax increase
Many of these increases will undermine the very strategies state lawmakers have used to grow Connecticut’s economy—tax policy promoting jobs and investment in aerospace, biopharma, defense, finance, and other core industries.
We can’t forget that Connecticut is in a competition for jobs and economic growth. And our national competitive rankings are not nearly where they should be (see related story, Page **).
Only three other states tax as many business services as the proposal under consideration—and Connecticut really doesn’t compete with any of them: New Mexico, South Dakota and Hawaii.
However, Florida, Michigan, and Massachusetts, with whom we do compete, passed similar tax expansions—and repealed them because they immediately saw what a very bad idea it was.
Connecticut needs to follow their lead and instead promote a pro-growth economy that can naturally deliver the steady, sustainable revenues needed for critical state services.
Less than two weeks remain for lawmakers to make the right choices. It’s time for fresh thinking that will grow Connecticut’s economy exponentially from dynamic, job-creating employers; streamline state government; and solve once and for all the state’s fiscal challenges.
1) Spending 1992-2015: Adjusted for $2.8 and $3.2 billion removed from cap in 2014 and 2015 with appropriations percentage increases applied.
2) Two-year budget and tax plan in HB 6824, SB 946.