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Two Panels Will Review CT’s Business Tax Exemptions

by | Jan 13, 2012 6:30am () Comments | Commenting has expired | Share
Posted to: Business, Jobs, Labor, State Budget

(Updated 10:10 a.m.) Gov. Dannel P. Malloy signed an executive order to create a nine member Business Tax Policy Review Task Force Thursday hours after a national expert on tax policy gave a speech on that very issue at the state Capitol and weeks after state Comptroller Kevin Lembo urged the legislature to reconvene a similar task force.

“This task force will make sure that Connecticut is getting a solid return on those investments by closely examining ways to reduce costs, improve efficiency, and ensure that taxpayer dollars are being used to create and retain good, permanent jobs for our workforce,” Malloy said in a statement.

For years Democratic lawmakers begged Republican governor’s to review the state’s $5 billion in tax exemptions and credits, but their calls to reform the revenue side of the budget fell on deaf ears.

Republicans maintain the state has a spending problem and feel that many of the tax exemptions on the books are for business to business transactions. They say eliminating some of them may hinder job growth in the state or simply increase the cost of doing business for certain companies.

Malloy, a Democrat, eliminated some of the sales tax exemptions for specific businesses, such as yoga studios and yarn retailers, in his first budget proposal. It’s likely more will be on the chopping block after the task force completes its works in October.

But this time instead of sales tax exemptions the new task force was asked to look specifically at business taxes.

According to an annual report by Ernst & Young Connecticut’s total business tax burden if you add up all state and local taxes was about $6.9 billion and the total effective tax rate, which measures the ratio of business taxes to private-sector gross state product, was 3.3 percent in 2010. The average total effective tax rate for all states was about 5 percent and in some states like Vermont was as high was 7 percent.

Malloy recognized that Connecticut’s business tax burden was the lowest in the nation in his executive order.

“While Connecticut’s total effective business tax burden is the lowest in the nation, we must continue to evaluate and improve the state’s business tax policy, which is vital to assuring a positive environment for business development and job growth,” Malloy wrote.

Malloy instructed the task force, which has yet to be appointed, to identify specific business tax areas, including business tax credits that should be the focus of future legislation and to evaluate the cost, benefit, and efficiency of the current business tax structure and credits.

The Business Tax Credit and Policy Review Committee that Lembo urged the legislature to reconvene will study and evaluate existing credits against the corporation business tax and make recommendations on changes or modifications necessary where tax policy “…is not providing a measurable benefit sufficient to justify any revenue loss to the state.”

Lembo pointed out last month that the legislature created this panel in 2005, but it was never convened.

“There are more than a half billion state tax expenditures on the books – and we need to confirm whether they’re working,” Lembo said Thursday. “With so many dollars at stake, particularly concerning job-creation initiatives, they must be monitored closely to ensure success.”

The committee will hold its first meeting 11 a.m.,  Jan. 30.

Meanwhile, Matthew Gardner, executive director of the Institute on Taxation & Economic Policy, told a group of policy advocates at the CT Voices for Children forum that getting corporate tax information these days is tough, but transparency is crucial toward reforming the tax code.

He said every year state’s and Congress are constructing special tax breaks for specific industries “with little public debate, and no guarantees the public will ever get anything in return for these tax breaks, and no oversight going forward to determine how these tax breaks are working.”

“This process thrives on a lack of transparency and the more we know about the way these deals are made the more likely it is that these deals will be made in a way that’s advantageous for the residents,” Gardner said.

Aside from transparency Gardner also touted sustainability.

“The most fundamental goal for corporate tax reform has to be sustainability,” Gardner said. “You need to have the corporate tax grow over the long run, one that keeps pace with the public investments it’s supposed to be paying for.”

Connecticut‘s corporation tax seems to be going in the wrong direction.

“The Connecticut corporate tax has shrunk dramatically over the last quarter of a century,” Gardner said. “We also know from a recent report by Ernst and Young… Connecticut business taxes are low and are in fact about as low that any state in the nation.”

He said the Connecticut corporate tax is no longer pulling its weight to fund the state’s basic investments. He said both the state and federal government are collecting about half the revenue they ought to be from big corporations.

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(6) Archived Comments

posted by: JAM | January 13, 2012  9:30am

Connecticut has had zero economic growth in the past 20 years. And raising taxes on business will improve that situation!
I have no objection to a review of specific tax policies to ensure that the hoped for benefits are being realized. However, any changes should be revenue neutral overall.

posted by: Noteworthy | January 13, 2012  10:36am

There he goes again. Matthew Gardner advocating for ever higher taxes in order to fuel the wasteful spending of state government while pretending to be investments is an old song with tired lyrics. So we now have multiple commissions all doing the same thing, all costing the state money and whose goal is to gin up more taxes.

The reason why the corporate rate seems so low is because of dumb tax breaks like Malloy’s buying of temp jobs from the likes of ESPN and Cigna. When you give tens of millions in tax credits away for a paltry bit of temp jobs, what have you done that is either sustainable or immediate? Nothing. When you give hundreds of millions of dollars away in real estate and grants to a bio-tech firm that will not create very many permanent jobs for CT citizens already here vs. the investment - what have you done? Absolutely nothing except a temp headline, a temp job and long term poor tax collection.

The problem is stupid unaccountable spending; unnecessary tax credits for jobs that were going to be produced anyway, and loopholes that allow GE and banks to pay little if any state tax.

posted by: Not that Michael Brown | January 13, 2012  11:11am

Pez in Orange got a $2 million grant to create jobs.  None of the people they hired with the grant work there after only three years later.

posted by: cgraesser | January 13, 2012  11:35am

The statement that Kevin Lembo “reconstituted” the Business Tax Credit and Policy Review is incorrect.  A board created by the legislature, which this is, cannot be “reconstituted” by a member of the executive branch.

posted by: Christine Stuart | January 13, 2012  12:21pm

Christine Stuart

Thanks for pointing that out cgraesser it has been edited to reflect that the committee is a construct of the legislature. I was struggling with how to word it initially because it was getting too wordy. Lembo has been appointed to the committee by House Speaker Chris Donovan. Apologies for the confusion.
Christine Stuart

posted by: Disgruntled | January 13, 2012  7:11pm

While gazing at HUGE percentage increases for “fees” imposed on just about everything that used to be considered free or low cost in my town I can’t feel much pity for the “job creators” who have been getting a free ride in this state. Another article I read today re:ANGEL INVESTORS getting tax breaks in this state almost made me lose my lunch! Usurious interest rates and returns are just not enough?!!
Hartford does not get it.
Dan does not get it.
Lining the pockets of business while picking the pockets of Regular Joes is not sustainable.
One day,with luck and collective outrage,we will take back Hartford for the people of Connecticut! BUT,if history is any indicator I will not be holding my breath for change in the Nutmeg State.

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