Because of Connecticut’s high costs (for wages, health care benefits, and energy) tax credits and other incentives that can help employers reduce their business costs are essential to the state’s tax structure.
Tax credits are designed to encourage positive economic outcomes and actions, including capital investment, research and development, job creation and investment in urban areas.
But predictability is a must for an effective tax credit system. All of those positive activities require long-range planning, and no company is going to invest resources in, perhaps, planning a new research and development facility in the state if there is doubt about whether the R & D tax credit will be available.
Constant tinkering with tax credits or threatening to limit their use undermines the system’s predictability and the state’s attractiveness as a place to do business.
Defeating the purpose
Employers can’t take advantage of tax credits unless they stay in the state and engage in whatever activity the credits are designed to encourage. Suspending the use of tax credits, capping the amount of credits that can be claimed, or otherwise limiting their use will backfire—resulting in less (or no) activity in the same areas the state originally wanted to bolster.
Tax credits generate revenue
Tax credits have enabled the kind of business activity that produces millions of dollars in tax revenue for the state every year. Shutting them down in the interest of short-term revenue gains would effectively eliminate a major source of long-term revenue for the state.
Businesses would simply choose not to locate or expand here—and would instead move to states with more favorable growth incentives. Ultimately, Connecticut would be left uncompetitive, with a significantly less robust tax base as investment and jobs flow to other states.
Many states would be eager to lure employers and their tax revenue from Connecticut.