In a budget packing possible implications for economic development in Fairfield County, the New York Assembly backed Gov. Andrew Cuomo”™s determination to close a $10 billion deficit with no new taxes, instead relying on heavy cuts in education and health care.
In contrast, Connecticut Gov. Dannel P. Malloy wants to hike taxes on Connecticut”™s middle class and wealthy residents ”“ taxes likely to hit small businesses as well that file returns using individual forms. Business groups are arguing that tax increases will cost the state jobs.
Only in March, Malloy”™s budget director acknowledged the need to keep an eye on tax policy in neighboring states in an attempt to keep Connecticut competitive for jobs and residents ”“ particularly with regard to the hedge fund industry he noted is a major contributor to the state”™s economy.
“Employees and managers of hedge funds bring significant revenue to our state coffers,” said Benjamin Barnes, director of the Connecticut Office of Policy and Management, which spearheads the governor”™s budget process. “One of the reasons that they have set up shop in Connecticut is because not only do we have a large group of well-qualified potential employees to run their businesses, but we have very competitive income tax rates at the high end compared to New York and compared to other states.
“We are cognizant of ensuring that we don”™t create a tax structure that incentivizes them to leave and to go across the border into New York or New Jersey or Massachusetts or some other nearby state that has similar quality of life,” Barnes added. “I believe we have been very careful in terms of income tax rates, in terms of corporations”™ tax rates, in terms of our insurance companies”™ tax (and) in terms of the sales tax rates.”
The Tax Foundation set for April 12 what it calls “tax freedom day” ”“ the date when the average U.S. citizen has plowed the totality of his wages earned to date in 2011 to meet his federal, state and local tax obligations, and is now keeping the full amount of each paycheck for the remainder of the year.
In Connecticut, “tax freedom day” will fall just over three weeks later on May 2, the latest date in the nation and more than a week later than the 2010 date the Tax Foundation marked it.
Norwalk Rep. Larry Cafero has been leading opposition in the Connecticut General Assembly to Malloy”™s tax plan, arguing the budget gap can be bridged with no new taxes.
Taxes dominated discussion at a Stamford panel sponsored by the Business Council of Fairfield County, with the Legislature”™s Democrat leaders Rep. Chris Donovan and Sen. Donald Williams Jr. defending Malloy”™s plan against Republican minority leaders Rep. Larry Cafero and Sen. John McKinney of Fairfield.
Cafero and McKinney maintained Connecticut can balance the budget without raising taxes ”“ and that it is a better strategy than Malloy”™s mix of targeted cuts and increases in revenue and spending. For his part, McKinney ticked off a list of specific cuts he said in total would erase the deficit, without speculating on what impact those cuts would have on varying services provided by the state.
“(The governor) has declared loud and clear that Connecticut is open for business,” Cafero said. “What is going on in the Legislature right now sends the complete opposite message ”¦ We are (piling) taxes on top of taxes on small businesses that are barely keeping their doors open. We say one thing and we do another.”
That cuts both ways, noted Donovan, who reminded attendees of Pfizer Inc.”™s recent decision to move jobs from the New London area to Cambridge, Mass., long after a rich package of incentives had expired. Pfizer”™s ongoing downsizing in New London County is an ample argument against showering businesses with tax deals in exchange for jobs.
“I feel like a jilted lover in some ways,” Donovan said. “We gave them tax incentives, we went to the Supreme Court for them over eminent domain ”¦ The reason they left is the tax incentives ran out.”
The Pfizer story shows the folly of tax incentives. We are fooling ourselves if we think we can lure business into the state with incentives and then turn around and hit them with the most onerous taxes in the nation.