CT business taxes: more fiction than fact

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When it comes to the state budget, there is a lot more fear than fact floating around these days. The fear is understandable; the budget touches all of our lives. To prevent confusion, some hard facts can be helpful.

First, the budget squeeze in which we find ourselves has much to do with decisions made during the past administrations, including the historic failure to fund state pensions and invest in infrastructure (including roads), the choice to issue tax refunds rather than paying down existing debt, and the failure to modernize our tax code as our economy changed.

Ignoring problems is never a best plan. In this case, decisions made in past years mean that we now have huge catch up payments to pay down, similar to the balloon mortgages that cost so many families their homes. But to get our fiscal house in order, these payments are essential. The governor should be commended for his leadership here.

Second, contrary to the loud complaints of some in the corporate community, the budget does not impose outsized demands on big business. When corporations complain of high business taxes, they are elevating fiction over fact.

Consider the most recent report on business taxes by the Council on State Taxation, a trade association for major corporations including GE, which found that Connecticut tied for the second lowest state and local business tax burden in the county with taxes at 3.4 percent of gross state product (compared to 5.8 percent in New York and 5.1 percent in New Jersey). It found that our businesses pay a smaller share of total state and local taxes than in most other states, and get a better return than businesses in most other states in the publicly-funded services provided.

Third, smart corporations — large and small — choose to do business in Connecticut because of our well-educated workforce, strong public education and health systems and beautiful environment. Indeed, Connecticut offers one of the highest standards of living in the nation.

In the 2014 Measure of America Report, the Social Science Research Network ranked the well-being of each state based on a range of human development factors (drawn from the United Nation’s Human Development Index).    Connecticut ranked number one in the nation, and has held that spot since at least 2010. While this aggregate state measure masks tremendous disparities in opportunity based on race and ethnicity, it nonetheless explains why, apart from our low business taxes, business executives are most hesitant to leave our state.

The bottom line is that the budget represents a compromise: it improved tax fairness a bit at the top end of the income scale even as it asks even more from low-wage workers who are trying to make ends meet. Would it have been be fairer to lower the sales tax rate, restore the Earned Income Tax Credit, keep low-income parents on HUSKY, and pay for other essential public services with a slightly higher tax on unearned income and higher business taxes? Of course. But the budget passed by the legislature represents hard work, good faith compromise, and financial responsibility.

Let’s push back against the fear, exaggerations and misinformation and stick with the basic facts. No changes in the state budget should be considered in next week’s special session.

Ellen Shemitz is executive director of Connecticut Voices for Children.

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