Watch Out for Real Impact of Tax Proposals

Appearances can be deceiving. Take, for example, tax proposals in the Planning and Development Committee that might seem like good ideas for cash-strapped cities and towns but would actually create a series of unintended, and unfortunate, budget consequences for Connecticut municipalities, taxpayers and businesses.

CBIA testified before the committee this week against the measures that would give cities and towns greater authority to levy taxes. The problem is, they are not really not the panacea some would hope.

Taxing departures

SB 64 would allow cities and towns to raise revenue by such alternate means as local sales and income taxes, provided they correspondingly reduce the property tax.

Local sales and income taxes would actually create a good reason for local businesses, such as retailers, restaurants, repair shops and more, to opt out of the taxing community and relocate elsewhere.

Then there’s the reality of how new taxes would boomerang on local government budgets. Most municipalities don’t have the personnel or expertise to administer new taxes, especially in times of severe budget crunches.

One of the busiest areas of the state’s Department of Revenue Services is the sales and use tax section. Imagine the cost impact on local governments if they had to add that to their administrative duties.

Anti-development

SB 130 would allow local municipalities to adopt different tax classifications for certain properties. The aim is to put a higher tax rate on undeveloped properties in order to force their owners to develop them.  

Better policy would be to make it easier and more cost-effective to clean up contaminated properties in Connecticut—something that developers and others have been trying to get state government to do.

At the least, lawmakers should do a comprehensive study of the pros and cons of such a proposal to see if it really would be a good move for the state. Many urban areas are encouraging some open space around buildings to improve the look and feel of areas as well as to increase pedestrian traffic.

No relief for businesses

SB 898 would authorize municipalities to provide property tax relief to low and moderate-income homeowners. By itself that’s a laudable goal, but the reality is that it wouldn’t occur “by itself”–it would shift local tax increases onto Connecticut businesses, many of whom may not be able to afford it.

Under the bill, some property tax obligations of low- and moderate-income individuals would be shifted onto businesses. Since commercial and industrial property owners would not be eligible for the exemption, their taxes would increase.

Taxes on employers’ real and personal property would increase. Because businesses pay taxes on a much broader range of items than do individuals, such as on furniture, fixtures, computers and certain machinery and equipment, the hit would be harder on businesses.

Ultimately, the impact of SB 898 would be to put the brakes on efforts to improve the state’s economic climate—which is not what lawmakers say they want to do.

It’s very important for lawmakers to understand the full impact of tax measures. Approving a benefit for some is likely to disadvantage others.

The best way to reduce Connecticut’s tax burden is to get the state’s economy fully working again, not by devising tax schemes.

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