A Connecticut Tax Compromise for Both Parties – Hartford Courant
As we’ve heard often from Democrats over the past few years, individuals, corporations, and businesses should pay their fair share of taxes. Sure, “fair” is in the eye of the beholder. Without getting into the question of whether it’s fair to tax high-income people, especially very high-income people, more than they already are, that’s certainly a growing part of politics and democratic beliefs.
At the same time, Republicans complain of an endless appetite for spending (hence raising taxes and revenue) from Democrats. One element of this complaint is that there is no endgame. It’s always more with no end in sight, like “if we only got to X% rate and $Y, we’d be fine”. Perhaps some skepticism would be allayed if that were the case.
One of the Republicans’ arguments is that taxation is bad for the economy and bad for business because it drives up the cost of doing business in Connecticut and the states compete with each other. There is no more publicized case than sports stadiums where cities outbid themselves for the privilege of hosting a professional team.
Some may remember the embarrassing “Hartford Patriots” case championed by Governor John Rowland, who tried to entice the New England Patriots to come to a new stadium in Connecticut. There was a handshake and many were happy in February 1999. But Patriots owner Robert Kraft played Connecticut for suckers to get a better offer from Massachusetts.
States regularly introduce tax incentive programs to attract leading companies. Even with these packages, businesses may not choose Connecticut. You hear about so-called “success,” like the recent package delivered to Sikorsky Aircraft that “provides up to $75 million in performance-based incentives in the form of sales and use tax offsets and tax credits.” It seems counter-intuitive to provide companies with money to make money for themselves. It’s not like Connecticut is getting a profit share – just a guarantee of jobs, which of course the company would need to produce goods and make money anyway.
You don’t usually hear about Connecticut’s lack of success in attracting business. Who would like to make them known? Like when General Electric moved to Boston in 2016, Connecticut being outbid and GE citing it was “unhappy with Connecticut’s tax policies.”
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Instead of throwing money at specific businesses to try and lure them in, why not create a general business-friendly climate in Connecticut that attracts businesses based on reputation. How? Eliminate all business taxes. The concept of taxing a business does not make sense when trying to attract business. Incentives matter.
Democrats like to tax corporations because they tend to view corporations as a faceless entity and, for the most extreme Democrats, as evil. The Democrats are right and wrong about this. The Marxist/Socialist belief in state enterprise sounds good in theory, but has often failed with murderous dictators (Stalin, Mao Zedong, etc.) taking government control over every aspect of life. But they’re right when they think big business engages in wrongdoing or unethical practices and needs regulation (savings and credit crisis, Enron, The Subprime Crisis, etc.), except that unethical practices and wrongdoings of any kind occur in every group. The vast majority of wrongdoing goes unreported.
But business taxes make up about 12.5% or $2.7 billion of the state budget (using fiscal year 2020, pre-pandemic numbers) and are expected to be offset by tax cuts or increases. other taxes.
To avoid cuts that would be a double whammy for Democrats (and not an easy one), why not raise the income tax on the rich as Democrats have often proposed? All the money corporations make ultimately ends up in the pockets of human beings. Why not tax the individuals who receive these funds rather than the entity that is the vehicle to create them?
Income tax is just over 45% of the budget or $9.7 billion (using fiscal year 2020). Raising income tax by an additional $2.7 billion would increase the income tax percentage of the budget by another 28% to $12.4 billion or 55.7% of the budget. As with all taxes, there is no layup here. Would wealthy people leave Connecticut if their income was taxed at a higher rate? Maybe. But because theoretically they would make more money, they could afford higher and more, ahem, obscene salaries and benefits. But the fact is that businesses would thrive and workers would be needed, employed and earning, helping to create a healthy economy.
The main advantage of this idea is that it gives both parties something they want. Taxing the rich didn’t win over Governor Ned Lamont, but the General Assembly could probably pass it with another governor, or if Lamont changes his mind. In this case, Democrats would have no incentive to waive business taxes. But until that day comes, maybe it’s a win-win for both parties?
Alan Calandro is an independent voter and former director of Connecticut’s nonpartisan Legislative Tax Analysis Office. He lives in Burlington.