State Needs Stable Tax Policy to Keep, Grow Jobs

Stable, competitive and predictable tax policy—if Connecticut offers it, businesses will stay to keep and grow more good jobs here. Without that kind of tax policy, however, Connecticut stands to lose—in revenue, jobs and a healthy economic future.

That’s what executives from big and small companies throughout the state told a panel of state lawmakers in a State Fiscal Policy breakout session at Connecticut Business Day. The panel addressed both a wide range of specific tax policies and generally what Connecticut’s tax policy should be to help employers grow jobs.

What’s most important for lawmakers to understand, said business leaders, is that companies are competing actively and fiercely not only in this region, but throughout the United States and internationally. Critical decisions are being made every day on where to locate a business and they often hinge on what kind of tax environment a state can offer.

Right now, with certain tax proposals being proposed in the legislature, business leaders are not certain about Connecticut’s business tax policy.

Keys to success

Keys to a good tax environment, said business leaders, are a level playing field with other states, the removal of any barriers to tax competitiveness, and identifying ways to create a tax climate in which businesses can succeed.

But lawmakers in the session said that what they are seeing is that with Connecticut facing a $3.2 billion state budget deficit, “we’re not starting on an even plane—we have to turn this [budget crisis] around.” However, they are listening “very carefully” to businesses on corporate tax proposals and how they would impact employers. 

Tilting the playing field away from Connecticut is that while we are not alone in facing significant budget deficits, other states are avoiding tax increases in order to make them more competitive for jobs. Georgia, Florida and Indiana, for example, are actually reducing their business taxes.

And where Connecticut has a research and development tax credit to help the state grow jobs “organically,” said one tax specialist, we still fall short competitively. Other states offer a 100% credit; Connecticut’s is 70%.

Wrong turns

Misunderstandings about the economic impact of tax proposals this year could run Connecticut into economic harm.  

For example, a proposal to impose mandatory unitary reporting really won’t do what some lawmakers think it will for the state, said a business leader. Mandatory unitary directly impacts companies that have operations in many locations—such as economic-base industries, such as manufacturing, R&D, and headquarters companies that employ tens of thousands of state residents.

Mandatory unitary reporting is not really the tax revenue rain-maker lawmakers anticipate, said executives. In Maryland and Virginia, state revenues actually declined under the policy and those states are now retreating from it.

And while revenues could decline, costs are likely to rise under this major overhaul of Connecticut’s tax structure. It will increase business and government costs to administer, to comply with and to deal with potential litigation because every state that has instituted it implements the policy differently.

The throwback rule also could have a disproportionate impact on the small and midsize companies in Connecticut, said one business leader.

A similar proposal proposed by the governor will affect in-state manufacturers with sales activity outside the state. Under this rule, sales by Connecticut manufacturers into states that do not have a corporate income tax are added back into the company’s Connecticut tax calculations. 

Both the unitary proposal and the throwback rule reflect a flawed tax policy, said executives—because they both penalize companies just for doing business here.

And the uncertainty they create works against businesses large and small from being confident in Connecticut as a place to locate.

The consequences of uncertainty, said executives, is that on a daily basis companies are making decisions that will impact the company three, five and even 10 years into the future. They urged lawmakers to understand the full impact of tax proposals and how they could convince companies that other, lower-tax-cost locations would be more favorable.

Lawmakers participating in the discussion were Finance Committee co-chairs Sen. Eileen Daily (D-Westbrook) and Pat Widlitz (D-Guilford), and Ranking Member Sen. Andrew Roraback (R-Goshen); also, Appropriations Committee Ranking Member  Rep. Craig Miner (R-Litchfield).

Others participating were Sen. Scott Frantz (R-Riverside), Rep. Joe Aresimowicz (D-Berlin), Rep. Brian Becker (D-West Hartford), Rep. Betty Boukus (D-Plainville), Rep. Ernest Hewett (D-New London), Rep. Gail Lavielle (R-Wilton), Rep. Jason Rojas (D-East Hartford), Rep. Daniel Rovero (D-Dayville), Rep. Pam Sawyer (R-Bolton), Rep. Richard Smith (R-New Fairfield), and Rep. William Wadsworth (R-Farmington).

For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com.