Economist: Psychology Matters in Attracting Business
Adopting “Right to Work” legislation, cutting corporate taxes, and reducing business regulations were among the proposals recommended by an economist Wednesday for making Connecticut “stand out in a crowd” of other states.
Economists from UConn released their quarterly “Connecticut Economy” report Wednesday at the Legislative Office Building. This quarter’s review included recommendations from Douglas Fisher, an economist and vice president at Goman+York property advisors in East Hartford.
Fisher wrote business recruitment strategies for Northeast Utilities for 17 years and said Connecticut has a problem with how it is perceived by companies looking to relocate and businesses looking to expand.
“Psychology matters. I’ve been on the front lines trying to market this state for a long, long time and we are taking a hammering in terms of the marketability of our state, in terms of putting our best foot forward in a national and international context,” he said.
Although he said none of the ideas he presented would turn around how the state is perceived overnight, he said they could help to differentiate Connecticut from its neighbors.
Fisher’s proposals would also be a hard sell in a state legislature controlled by Democrats. He recommended eliminating the state’s corporate income tax, which he said raises about 3.6 percent of Connecticut’s tax base. He also suggests a push to alter or repeal state regulations that stand in the way of economic growth.
“Make it a real public show . . . Make it really obvious so that the business community gets heartened by the idea,” he said.
Steven Lanza, the UConn economist who serves as executive editor for the quarterly report, took some of Fisher’s suggestions and tested them to see if there is empirical evidence to support the recommendations. Lanza said other economists have called for scrapping the corporate income tax.
“My view of the corporate income tax is that it’s probably more of a pain in the neck to collect it and to enforce it, and administer it, than it is in terms of the revenue that it really adds to the state’s coffers,” he said.
Lanza compared corporate income tax rates across states with growth in those states over a 12-year period. He said he found a statistically significant relationship between the two.
“States with lower corporate income tax rates see higher job growth rates,” he said, adding that the relationship held up even under more complex scrutiny.
Lanza said the same type of analysis did not find a similar relationship between job growth and the traditional income tax rate. Instead, he said he found a positive relationship between job growth and states which have enacted an income tax.
With regard to Fisher’s recommendation that the state reduce some of its regulations on businesses, Lanza said there is some evidence to support that suggestion as well. However, he said it is a matter of finding the right balance of regulations, not eliminating them altogether.
“Regulation is a good thing. You need to have regulation of business in order for business activity to take place. If you didn’t have stop signs and traffic signals, transportation would grind to a halt,” he said.
But when he compared small business growth to the level of regulation across states, Lanza ended up with a chart displaying a bell curve. On one end, in lightly regulated states, additional controls helped economic development. On the other side, regulations reduced economic growth. Connecticut was in the latter category, he said.
“After a while, it does choke off new business development. Connecticut, and unfortunately most states in the northeast . . . fall well above the hump in this curve,” he said. “. . . Probably it’s just an increase of all these regulations that simply don’t make sense and should be revisited for a modern day economy.”
Fisher and Lanza did not see eye-to-eye on the economic impact of legislation adopted by about half the states, which allows workers to opt out of labor union membership and dues. Fisher said there is a correlation between states with “Right to Work” laws and job growth and economic activity.
Lanza said some research suggests that those states have done better economically. However, Lanza believes the improved economic activity has more to do with factors other than the “Right to Work” laws.
“I don’t think being a ‘Right to Work’ state — I know Doug [Fisher] and I, we disagree about this . . . but I simply don’t think that’s a factor,” Lanza said.
Fisher acknowledged that the issue was “highly debatable.” He said he did not believe that passing the policy alone would make Connecticut competitive. But he said it does underscore a business-friendly attitude.
“I’m just throwing it out there among ways you can differentiate yourself. From Maryland to Maine, we would be the only one in that orbit to adopt that,” he said.
Fisher said passing the policy would send a huge psychological message to businesses.
“To say ‘Oh my God, Connecticut did that?’ — We want some ‘Oh my Gods Connecticut did that.’ Whether it’s ‘Right to Work’ or something else, in a positive direction that sends a message to businesses that we’re doing things differently,” he concluded.