Increasing Taxes Will Not Restore Prosperity To Connecticut

As the long-time owner of a small business, I am often amazed at what some legislators believe makes sense when it comes to digging our state out of debt and restoring prosperity to its citizens.

Generally, business owners do the same things that families do when faced with tough times. We look for ways to cut costs and reduce spending. Raising prices for customers is a last resort. After all, we want to keep our customers, not drive them to our competitors.

While it is true that running a state is not the same as running a business, or managing family finances, there are some striking similarities. Raising taxes – prices – is sure to drive away some state residents and businesses and, therefore, should be done only after we have exhausted all other options. While it is probably impossible for businesses, families and governments to remain completely debt free, logic tells us that excessive borrowing is dangerously expensive and worse, drags out one’s efforts to get back on solid financial ground.

That is why I am dismayed by the recent actions of the General Assembly’s Finance, Revenue & Bonding Committee. Fortunately, legislators have time before the General Assembly’s session ends next month to work together to craft sensible, workable, responsible alternatives to addressing Connecticut’s ongoing fiscal problems. Allowing the bills approved by the Finance, Revenue & Bonding Committee to become law would hinder, not help, our efforts to restore prosperity to our state.

For example, the committee agreed to advance a proposal to impose a 5.5 percent Hospital Provider tax. Revenues from this $207 million annual hospital tax increase would be redistributed under a complicated formula to reimburse hospitals for providing uncompensated care. Some hospitals would get back more than they pay in taxes, while others would get less. The committee’s plan to set aside $20 million to help hospitals that would lose money under this plan may not be legal under federal regulations. What is clear is that imposing this new tax would hurt at least some hospitals and possibly increase costs for patients.

Also, the Finance, Revenue & Bonding Committee voted to raise the rates on the estate tax, and impose this tax increase retroactively. Under this proposed legislation, the threshold for the tax would remain at $3.5 million from January 1, 2010 to January 1, 2012. However, the rates would be increased to between 14.8 percent and 20 percent. It is expected that increasing the estate tax rate would generate an additional $9 million this fiscal year, and an additional $165 million the next fiscal year – but only if so-called wealthy residents refrain from taking steps to protect their assets. Clearly, some legislators view increasing the tax burden on Connecticut’s wealthier deceased residents as a relatively easy way to bring in more money, especially now when the state clearly needs it. However, what they are not considering is that Connecticut’s wealthier residents may simply decide to protect their heirs by relocating, or by simply changing their legal residences to less expensive states. Every time that happens, Connecticut loses the taxes these individuals pay now, along with whatever they would be required to pay under our estate tax law.

In another attempt to raise revenues, the Finance, Revenue & Bonding Committee is calling for securitization of the revenue generated by certain charges on electricity bills. Without this proposed legislation, those charges included in bills for Connecticut Light & Power and United Illuminated customers are set to go away in 2010 and 2013 respectively. Under the Finance, Revenue & Bonding Committee’s plan, those charges would stay in place for the next 10 years to pay off bonds the state would issue to help balance next year’s budget. In other words, the committee wants the General Assembly to adopt legislation to impose a 10-year $1.8 billion tax on electric bills in order to pay off an expected $1.3 billion deficit in next year’s state budget.

Finally, the Finance, Revenue & Bonding Committee wants the General Assembly to require Connecticut-based corporations with subsidiaries in other states to pay taxes on all of its net income, rather than continuing to pay taxes just on the part of the company based in this state. Clearly, such a tax policy will hurt our efforts to keep businesses, and jobs, here – never mind attract new businesses.

Just the idea that the General Assembly is poised to consider these bills shows how desperate Connecticut’s fiscal situation has become. But it would be a drastic mistake, and a terrible disservice to future generations, to give in to panic and pass this harmful legislation. I have often heard it said that a state cannot tax its way to prosperity, and it is equally true that a state cannot borrow its way to prosperity either.

The bottom line is that the General Assembly must work together to cut spending. The way to do that is to recognize that our state government has grown too big and too expensive. We have to restructure state government so that it can provide necessary programs and services at a more affordable cost to taxpayers.

As always, I want to hear your views. I can be reached at my legislative office in Hartford at 1-800-842-1421 or via e-mail to [email protected].