2012-2013 Budget Proposal Part 2: Open for Business?

The Governor is proposing the “first of five” initiative. The proposal gives a credit to the first five companies who move 200 or more jobs into the state. According to the Office of Fiscal Analysis $80 million in General Obligation bonds set aside for this program. Senator Boucher asks, “Is the rate of return worth it? And, more important will these companies want to come to Connecticut? ”

This same budget proposal extends the 10% surcharge on corporations that was to have been sunset this year. This extension is a disincentive for companies looking to lay down roots in our state. Fed chairman Bernanke advocates for reforming the corporate tax code, to encourage businesses to create jobs. Corporate tax rates in the U.S. are currently some of the highest in the industrialized world at 35%. Senator Boucher says, “If Connecticut extends the 10% surcharge we have created a real problem for business. We are already next to the worst state in the nation for job growth. And job creation continues to be the number one concern for our residents.”

Aetna’s CEO said recently, “We’ve done the analysis, and, quite frankly, Connecticut falls very, very low on the list as an environment to locate employees . . . in large part because of the tax structure, the cost of living, which is now approaching, all in, the cost of locating an employee in New York City.” Aetna has 7,000 jobs here in Connecticut, and the CEO alluded that “keeping those jobs here will depend on what happens,” with this budget.

Senator Boucher says, “Connecticut’s competitiveness is at stake increasing taxes on businesses at a time when neighboring states are holding the line or lowering them puts Connecticut at a competitive disadvantage.”

Governor Malloy says he proposed raising Connecticut’s top income tax rate – for couples at the top of the eight new tax brackets – to 6.7 % because it would be lower than New York State’s highest rate of 6.85 %, 2012. Keep in mind Rhode Island is at 5.9% and Massachusetts is at 5.3%.

But the New York Post reported, “Looks like New York has a new secret weapon in its battle to keep residents and business from fleeing the state. His name is Dannel Malloy — and he’s the new governor of Connecticut.”

On February 23 the Governor of New Jersey stated on MSNBC, “I hope Malloy sticks to his plan as it will be great news for New Jersey.”

“We are not in competition with just New York,” said Senator Boucher. “What about other states like Texas and Florida where there is no income tax or corporate tax, don’t we compete with them?”

Boucher has been inundated with reactions to this budget including:

‘I had been planning to expand my business and add an employee but have shelved that for the foreseeable future. I agree in “sharing the pain” to a degree but closing a multi-billion dollar gap on the backs of the working public is too much to ask. My business does not require Connecticut residency and quite frankly, I am exploring the option to relocate.’

And this one ….

‘My home is on the market, and my husband and I are exploring options outside of Connecticut. My father’s ancestors arrived in this area in the late 1600’s and I have been very reluctant to leave. Until now.’

“I have received too many messages like this one,” said Senator Boucher. “We need to seriously consider alternative measures to the budget before us.”

Another anti-business proposal is the throw back rule, which would cut into profit margins already under pressure from global competition. The throw back rule would tax income on a corporation with facilities in Connecticut, but which does business in other states where it is not taxed. The income would be thrown back to the state and taxed here.

There will be an increase on insurance companies from 1.75% to 1.95 %. Electric companies who generate power in our state will be taxed 2 tenths of a penny per kilowatt hour. “Most likely that will be passed on to the consumer because power goes onto a grid and is used by many not just those living and working out of state,” said Senator Boucher.

There is a gas tax increase of 3 cents, and a diesel fuel tax of 2 cents. There are also seven new local taxes, from a hotel occupancy tax, to a rental car tax and a cabaret tax that municipalities would be permitted to levy called a local option. If you own a boat or an airplane you could be taxed at 20-mills. The towns would receive the revenues that these local new taxes would generate.

Nursing homes and hospitals and intermediate care facilities for the mentally disabled could also be charged a higher provider user fee, leveraging new federal dollars that could be returned to these institutions. “Yet, these fees are not counted as expenditures in the budget proposal being put on the table.” said Senator Boucher.

Some of the positive aspects to the budget include the funding of pension liabilities, education reform, and transportation priorities, legislative votes on state union contracts and halting borrowing for operations.

The Appropriations Committee will be holding public hearings on the proposed budget from February 22 through March 4. The public is encouraged to listen in and voice their opinion on the proposal. Please go to www.cga.ct.gov for more information on how to participate in the process.