New Report Challenges Business Community’s Perception of Connecticut’s Economy
HARTFORD, CT — (Updated 12:52 p.m.) A new report from the Center for Public Policy and Social Research wants to change the public’s perception of Connecticut’s economy and its tax structure at a time when lawmakers are wrestling with proposals to increase revenue.
Commissioned by the AFL-CIO, the report by three economists at Central Connecticut State University, finds that Connecticut’s quality of life and economic competitiveness are “quite robust.”
The economists, Jared Ragusett, Paramita Dhar, and Carlos Liard-Muriente, acknowledge at the end of the report that their findings “are not the popular perceptions of the state economy by the business community and government officials.” However, that doesn’t mean they’re wrong or the report wasn’t compiled with empirical data.
At a Legislative Office Building press conference Wednesday, Ragusett said if Connecticut continues on the path of “further austerity these advantages and strengths can certainly be diminished.”
Lori Pelletier, president of the AFL-CIO, said the report doesn’t portray the “doom and gloom” of the business community or their advocates.
She said this report, which uses publicly available research, should have lawmakers asking “whether they want to continue down the path of Kansas or Wisconsin balancing the budget on the backs of workers and their families, or do they take a path like Minnesota and New York, both of which have chosen to make significant investments in education, workforce, and infrastructure?”
She said after passing pay equity and raising worker wages, Minnesota has “15.3 percent more millionaires and is trying to decide what to do with a $1.6 billion surplus.”
“If Minnesota had the courage and political will to do it, why can’t Connecticut?” Pelletier said. “It’s time to stop being held hostage by the negative slant of the business community and begin listening to the overwhelming majority of Connecticut taxpayers.”
Currently, businesses in Connecticut have favorable tax advantages and the cost-shift has been on workers and families, Pelletier said.
“What we’re asking legislators is to take a step back from all the noise,” Pelletier said.
Part of the problem is that Connecticut failed to fund its state employee pensions for decades and the bill is now coming due, while that’s true, Pelletier said Connecticut has “shifted a huge tax burden away from those who have capital gains to those who have a W-2s.”
She said the shift continues from big corporate business to small business and then onto property taxpayers.
“We keep having this shell game,” Pelletier said.
Citing 2015 research by Ernst and Young, the report says Connecticut has the lowest Total Effective Business Tax Rate in the region, but states like New York and New Jersey, with higher business tax rates, are performing at a faster pace than Connecticut.
The report also concludes that “Connecticut provides businesses the lowest share of business taxes as a percentage of state and local taxes not only in New England, but in the country. This is a significant advantage for business and makes Connecticut an attractive location to do business.”
Joe Brennan, president and CEO of the Connecticut Business and Industry Association, said the results of the Ernst and Young study are based on certain criteria. He said a note to that report says very clearly that “These results should not be interpreted to mean that Connecticut is a low-tax environment overall.”
Connecticut’s taxes are 57 percent higher on a per capita basis and 15 percent higher based on a measure of personal income, Brennan said citing the same report.
“It’s all in how you measure these things,” Brennan said.
He said the only reason to argue Connecticut has a low tax rate would be because you want to increase taxes.
“We’re all ready lagging the rest of the nation and region in creating new jobs, so raising taxes shouldn’t be part of the conversation,” Brennan added.
The Connecticut Business and Industry Association launched a campaign a few years ago in an effort to boost Connecticut’s rankings in national surveys. Connecticut has traditionally ranked toward the bottom 10 states in almost any national survey of its business climate.
A July 2016 CNBC survey, ranked Connecticut 43rd in the nation. Down 10 slots from its 2015 survey.
The high cost of doing business and poor infrastructure were cited among the state’s weak points, while Connecticut’s innovation and quality of life were bright spots in the report.
The report commissioned by the union coalition concluded that promoting Connecticut as a “business tax-friendly state needs revaluation” particularly considering that years of budget cuts have left the state in a weaker position.
Connecticut’s public sector workforce lost 4,300 positions in 2016 with an overall decline in public employment of 21,900 jobs relative to its peak in 2008.
“In other words, Connecticut is not achieving the expected job creation results by having both the lowest business taxes per private sector worker in the region, and the lowest share of business taxes as a share of state and local taxes in the United States,” the report concludes.
But according to U.S. Census data more than 575 Connecticut residents per week are packing up and moving out. Between July 1, 2015 and July 1, 2016, Connecticut’s total resident population fell by 8,278 people.
The report, which seems to be presenting a view that’s the opposite of what Connecticut’s business community has been telling lawmakers, says residents enjoy their living conditions in Connecticut. The conclusions were based on a DataHaven survey of 16,000 residents.
“When residents were asked about their living conditions in the state, their answers don’t correspond to perceptions advanced by business advocates,” the Center for Public Policy and Social Research report states.
The report seems to be making the case for another tax increase on the wealthiest and businesses, who, according to the economists, are receiving economic and tax benefits from the state that seem to outweigh what they’re paying in taxes.
“Disinvestment, not a higher tax burden, will only diminish the state’s economic competitiveness and high quality of life over the next ten to fifteen years. Investment is therefore required to stimulate and sustain economic growth.”
Gov. Dannel P. Malloy’s budget calls for $1.56 billion in labor savings over the next two years and it eliminates some popular tax exemptions from Connecticut’s middle class and lower-income residents, which means taxes will be increasing about $200 million per year over the next two.
But Malloy has been hesitant to entertain tax increases as part of the solution to closing a two-year budget with a $3.6 billion deficit.
After the last tax increase in 2015, General Electric made headlines by moving to Boston, Massachusetts, which gave the company about $165 million in economic incentives to move their headquarters.
Whether it’s fair or not to blame the move on Connecticut’s tax structure, lawmakers who argue against tax increases, especially on the wealthy, often point to high-profile companies like GE moving out of Connecticut, as a reason to keep the tax rates low. The unions have been struggling to counter that argument. They plan to use this report as evidence Connecticut needs to think differently.
The AFL-CIO organized against lawmakers who voted in favor of last year’s spending cuts only, “austerity” budget.