Gov. Malloy this week proposed a two-year state budget that closes a large part of a projected $2.2 billion current services deficit over the biennium with revenue increases that fall mainly on Connecticut’s job creators and could stall the state’s economic momentum.
The proposal significantly reduces vital investment incentives, cancels previously scheduled tax reductions, and indefinitely extends the corporate tax surcharge.
Of the $900 million in proposed revenue increases over two years, businesses will be hit with well more than half--$496 million--and that’s after the elimination of the business entity tax is taken into consideration.
But it’s not just the amount that’s troubling.
“Connecticut is on the cusp of something big,” said Joe Brennan, CBIA president and CEO. “We’ve got excellent economic potential in this state, and we shouldn’t close budget gaps by discouraging the very companies that are driving our economic recovery.”
Over the past several years the state has worked hard to attract and keep manufacturers, biopharmaceutical companies, and financial services firms, and other job creators.
But all of them—and the thousands of small businesses and their employees throughout Connecticut that provide them with products and services—will be impacted by the tax proposals.
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 and entrepreneurial activity 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
Policies with Purpose
Tax credits are policies the legislature purposely adopted and a governor signed in order to encourage economic activity—such as growing the state’s biosciences industry, or advanced manufacturing.
Businesses need to be able to count on consistent and predictable state tax system when planning and making decisions about where to locate or expand.
The best way to grow state revenues is to grow the economy. Raising costs on key industries, however, will stall that growth, make the state less competitive, and send a troubling message to businesses that have been driving the state’s economic recovery.
Connecticut has seen better job growth numbers of late but the state is both behind competitor states like Massachusetts, not yet reaching its full economic potential, and can’t until we improve our economic competitiveness.
The budget also includes a reduction in the state sales tax. Increased four years ago to 6.35%, it would dip to 6.2% in November and 5.95% in 2017.
No state employee layoffs, concessions, or early retirement incentives are included in the plan. It does however, have $343.5 million in raises and cost of living adjustments for state employees. The state’s workforce is expected to shrink somewhat through attrition.
However, many education, healthcare and social services programs would be cut, and the state’s Rainy Day Fund left untouched.
The governor also proposed a major investment in the state's transportation infrastructure, that begins with five-year, $10 billion plan to start work on widening highways and roads, upgrading and building new rail lines and facilities, and expanding transit systems.
He also spoke about his plan for a “Second Chance Society” that would deal with nonviolent offenders mainly outside of the state’s prison system; called for providing universal pre-kindergarten; pledged to maintain current state support for schools; and provide aid for cities and towns.
“Connecticut can be a top destination for business,” said CBIA’s Brennan, “but we need to encourage rather than discourage investments that lead to job creation”.
The $40 billion proposal is the first step in a long process that will continue in the legislature and administration and culminate in a final budget vote before the 2015 session adjourns on June 3.