Connecticut’s Business Taxes Are Nation’s Lowest!

A new report from the Council on State Taxation, a trade association of multistate corporations, ranks Connecticut’s business taxes as the lowest in the nation. In fiscal year 2010, Connecticut’s state and local taxes on business comprised only 3.3% of private sector economic activity (private sector gross state product or GSP), compared to the national average of 5.0%. The business group has placed Connecticut at or near the bottom of its tax rankings for the last seven years.



The study was conducted for COST by the Ernst & Young accounting firm based on what businesses actually pay in taxes (rather than relying on tax rates, which are peppered with loopholes and difficult to compare across states). The Ernst & Young measure is also comprehensive, including not just the corporation business tax (CBT), but also the other taxes that fall on businesses: property taxes on business property; general sales taxes on business inputs; unemployment insurance taxes; business and corporate license fees; public utility taxes; personal income taxes on pass-through business income; excise taxes; insurance premium taxes; and other miscellaneous taxes.

In a summary of the analysis, Connecticut Voices for Children, a research-based think tank, suggested that in the upcoming special session, the Governor and state legislators should turn their attention to other costs that weigh more heavily on decision making for Connecticut businesses, such as energy, health care, and transportation costs.

“For many years, Connecticut’s economic development efforts have been heavily focused on tax subsidies for big businesses,” said Wade Gibson, Senior Policy Fellow at Connecticut Voices. “In light of 20 years of anemic job creation, this study suggests that strategy is misguided.”

Sinatra Liberates A Prison

The Surplus State

Zach Janowski, the Yankee Institute investigative reporter singled out by incompetent SEBAC leaders in their baseless complaint to the attorney general’s office as a “so called” investigative reporter, has disclosed in his latest report that Connecticut has collected “$1.1 billion more taxes than expected last fiscal year, the same day that Gov. Dannel Malloy’s $900 million retroactive income tax increase went into effect.”

Although the Malloy administration failed to reach by some $400 million the $2 billion in cost savings measures it initially had demanded from SEBAC, the coalition of state unions authorized to negotiate contracts with the administration, the tax increases the administration imposed upon nearly everyone in the state as a part of its “shared sacrifice” effort has, perhaps unsurprisingly, yielded an “unexpected” surplus.

The Malloy surplus, made possible in part by an ex post facto income tax charge, should not astonish those commentators in the state who have previously reported on state budgets. Surpluses were common in the budget years following the imposition of the Lowell P. Weicker Jr. income tax.

The predictable announcements of surpluses during these years of plenty followed an almost religiously observed rite, beginning with an declaration of a possible deficit, followed by an agonizing appraisal of the likely damage done to Connecticut’s fragile social services net should the legislature be so unwise as to insure savings necessary to balance their budget through prudent cuts, followed by a last minute announcement that an unanticipated surplus had magically materialized, obviating the need for cuts and permitting legislators to return to their districts and there proceed to hand out state distributed goodies before their next election.

This budget year, the usual dance varied, but not much, from the usual formula.

Mr. Malloy, the first Democratic governor in more than 20 years, had been wafted into office on a promise that as governor he would not resort to the same discreditable budget persiflage as his predecessors – two Republican governors and another, Mr. Weicker, of indeterminate party status -- all of whom had produces surpluses to avoid raising taxes or cutting costs.

GAAP would be instituted, Mr. Malloy vowed during his campaign, to prevent wily politicians from drawing revenue from future budgets and dragging them into the current year, while at the same time pushing costs into succeeding budgets. The state’s current Comptroller, Kevin Lembo, recently advised that the state’s antique computer system is not prepared to handle such accounting changes; which is all very well and good -- because Mr. Malloy had postponed implementation of the new accounting procedures for a couple of years. And there is no need to fudge figures in any case, because wily Democratic legislators – Big surprise here! – had embedded into the Malloy budget an artificial surplus that would relieve the pressure put upon them to cut costs.

All this spelled frustration for Republicans and others who were trying unsuccessfully to force Democrats who control the legislature to cut costs by denying them revenues. The presence of red ink in a budget usually is a persuasive spending disincentive for rational legislators. But time-serving progressive ideologues committed to wealth transfers from productive workers in the private marketplace to unionized state workers are addicted to reflexive spending. So long as the General Assembly’s table sags with surpluses, crapulous senators and house members will continue to feast on fare taken from the more modest tables of productive workers. Surpluses, which are tax overcharges, are anti-stimulants for anyone who is not a tax consumer. While prudent tax cuts – a prospect far beyond the intention of the average spendthrift politician – stimulate the economy, wealth transfers stimulate the ungovernable appetite of spendthrift politicians who, unlike the fascists of a bygone day, lack in a functioning democracy the means of making the trains run on time.

A handful of legislators in the General Assembly, Sen. Joe Markley of Southington among them, get all this.

“The enormous tax hike,” said Sen. Joe Markley of Mr. Malloy’s tax boost, “was the sad result of our addiction to spending, which we still haven’t kicked. The bigger the tax increase, the more dire its affect will be on our state economy. I’d love to see Malloy call us back and undo some of the new taxes in light of this surplus, but I don’t expect it – big-government types generally celebrate such surpluses, rather than feel ashamed of them.”

A few more Markleys in the General Assembly may save Connecticut the embarrassment of a rapid decline, followed by default.

The Moving Middle, Or Why Republicans Should Not Listen To Weicker

Some years ago Bill Buckley, the founder of National Review, was traveling in Ireland and found himself in a pub talking to a few convivial Irishmen – Is there any other kind? – about religion. Mr. Buckley later noted that many of his conversations while in Ireland, no matter on what topic they started, sooner or later ascended to religion. Ireland was, after all, the nursery bed of Christianity following the collapse of the ancient pagan regime.

In the course of the conversation, someone mentioned a prominent Irish atheist, astonishing Mr. Buckley, who asked, “Do you mean to tell me there are atheists in Ireland?”

“There are, indeed,” he was informed. “But you must understand that in Ireland there are two kinds of atheists – Protestant and Catholic.”

Mr. Buckley is rightly credited with having launched and shaped the modern American conservative movement. Within the conservative movement, there are now many mansions: traditional conservatives, neo-conservatives, paleo-conservatives, fiscal conservatives, religious conservatives, bio-conservatives, social conservatives, libertarian conservatives, and more.

Over the course of the last half century, conservativism has transformed the Republican Party, and that transformation has changed the meaning of some political terms. We think of the terms left, right and center as ideological constants. But these terms also evolve. Unfortunately for some, memory does not evolve.

Just as the modern Republican Party is not your daddy’s Republican Party, so the center of Republicanism is not what it was in your daddy’s day. Within the modern Republican Party today – even here in a reliably left of center state – there are different kinds of moderates, but nearly all the moderates are conservative moderates.

The same general evolution has occurred within the Democratic Party. The steady drift of the party towards progressivism has moved the traditional center of the party to the left. When Senator Joe Lieberman's term expires, Connecticut will have bid goodbye to its last moderate or centrist congressional Democrat. Within Democratic Party precincts, the center has moved to the left. Within the Democratic Party in Connecticut, nearly all moderates are progressive moderates.

The distance between the party ships passing in the night is greater than it was in your daddy’s day. When a modern progressive Democrat thinks of a moderate, Mr. Lieberman, a Scoop Jackson Democrat, does not come to mind. When a modern conservative Republican thinks of a moderate, former Senator and Governor Lowell Weicker, a self described “Jacob Javitts Republican,” does not come to mind.

Commentators within Connecticut’s left of center media, bowing and scraping before the idol of centrism, the holy and imperishable “vital center,” sometimes forget to tell their ideological parishioners that even centers move.

That is why Republicans in Connecticut should take Mr. Weicker’s advice with a ton of salt – and not just because Mr. Weicker during his day was a left of center Republican who shamelessly used his party as a political foil to curry favor with the more numerous Democrats in his state.

During a recent gathering of independent centrists in Hartford, Mr. Weicker cautioned Republicans that they must move to the center if they hoped to win elections. Connecticut, Mr. Weicker said, is a blue state. He might have said, more clearly, that the Connecticut Republican Party must become more like the Democratic Party to win elections; that strategy was, after all, the secret of Mr. Weicker’s own success in politics, until both Democratic and Republican centrists tired of Weicker and voted for his Democratic Party opponent, Mr. Lieberman, who fancied himself, like Mr. Weicker, a centrist.

It should surprise no one when members of the ancient regime are smitten with nostalgia for the familiar ancient order of things. But the order of things has changed. Mr. Weicker’s cast off party little resembles Connecticut’s new Republican Party – because the center of things has changed. Had the center not changed to allow for changed circumstances, it could not hold.

Yankee Institute vs SEBAC, Final Round

Attorney General George Jepsen having investigated a charge made to his office by SEBAC, a coalition of unions the membership of which soon will be voting either to adopt or reject Plan A 2, that the Yankee Institute had used state the state’s e-mail system to communicate with union workers, the attorney general found that the charges against the institute were false. The comprehensive investigation by two state agencies, the attorney general’s office and the state Auditors of Public Account, Mr. Jepsen wrote in his finding, “did not show that the state e-mail system was improperly accessed or compromised in violation of state laws or policies.”

“As part of our inquiry,” Mr. Jepsen wrote, “we reviewed the e-mails sent to state employees and provided by SEBAC. The first e-mail, containing the subject line 'VOTE No twice on concessions… pass it on' was sent on May 24, 2011 at 8:07 pm from 'Lawrence Jones' to a state employee. The second e-mail, containing the subject line ‘http//votenotoconcessions.com,’ was sent to a state employee on June 13, 2011 at 8:07 pm from 'Daniel Luciano.' Neither Lawrence Jones nor Daniel Luciano is listed on the state’s central financial and administrative computer system (CORE-CT) as a state employee. Neither of these two e-mails originated from State of Connecticut internet protocol (IP) addresses. Each originated outside the state e-mail system and reflected a Yahoo e-mail address. The e-mails were sent to IP addresses leased by the State of Connecticut. State information systems security personnel informed us that the e-mails were not sent from within the state system, and there was no evidence that the safeguards in place to protect the state’s network from hackers or other intrusions were compromised or altered to permit or facilitate the transmission of these e-mails.”

Mr. Jepsen is to be lauded for not having allowed the leaders of SEBAC to use his office as a political tool for the purpose of discrediting the institute on false charges that, had they been sustained, might have succeeded in drawing public attention away from SEBAC’s botched attempt to convince rank and file union members to vote in favor of Governor Dannel Malloy’s doomed Plan A.

The same union leaders who falsely accused the institute of illegalities recently unilaterally changed union by-laws so that a previous vote on Plan A would once again be voted upon under circumstances more favorable both to Mr. Malloy and SEBAC negotiators, causing one commentator – yours truly – to note that SEBAC, having found it impossible under the old by-laws to fix a vote, had discovered a way to fix the voting process to its advantage. This kind of transparent attempt to fix a vote could only succeed if union leaders were to spew out a cloud of skunk scent to distract public attention from their own dramatic failings. The Yankee Institute, and more especially Zach Janowski, the institute’s investigative reporter, were convenient scapegoats upon which SEBAC leaders sought unsuccessfully to pin their own too obvious failings.

SEBAC’s objections to Mr. Jepsen’s finding were amusingly predictable. Leaping over the results of Mr. Jepsen’s exhautive examination, SEBAC lamented that the architecture of the state’s e-mail system “is apparently arranged so that outside groups can get around inadequate software restrictions and distribute emails through the system without being in violation of computer hacking laws -- and apparently without even being subject to detection” – and never mind that Mr. Jepsen found no instance of the state’s email having been hacked by the institute. SEBAC then noted that the institute’s political interests include “producing painful job cuts and ‘downsizing’ state government, which is really just code for privatizing public services.” In fact, Mr. Cullen has noted that the institute favored Plan A  – the very same plan promoted by SEBAC union leaders – over Plan B, which recently has been implemented by Mr. Malloy and includes painful cuts. No doubt the institute, along with many governors and legislators, favors the privatizing of public services as a means of controlling unsustainable costs. SEBAC’s objection to the institute’s view on privatization might have been more justly urged in a letter to the editor; SEBAC thought it rose to the level of a crime and engaged the attorney general as an instrument to harass and punish an organization for having taken advantage of its constitutional right disagree with the leaders of SEBAC.

Yankee Institute Director Fergus Cullen commented following Mr. Jepsen’s finding, “Making reckless accusations without a shred of evidence damaged the union's credibility. Rank-and-file state employees deserve better for their dues than the stunning incompetence of union staff throughout the concessions ratification process."

Mr. Cullen made his comment but a few hours before he had been told by Trinity College that the institute was being given the boot or, as Mr. Cullen, whose sense of humor is unfailing even in trying circumstances, preferred to put it – being expelled – from the Trinity College campus in Hartford where, for the past 13 years, the institute has stoutly defended educational institutions, private enterprise and constitutional rights more often miss-cited than observed by its detractors. It is not known what part SEBAC or union friendly legislators may have played in the institute’s unexpected expulsion from Trinity.

SEBAC Says News Media, Managers Sources Of Inaccurate Information

In a message to all its rank and file members, SEBAC, the coalition of union leaders authorized to dicker with the Malloy administration on contractual matters, reported:

“At the request of State Employees Bargaining Agent Coalition (SEBAC) union leaders, the Malloy Administration has moved to address conflicting information disseminated to some workers who recently received notice of layoff.”

Some members, according to the notice, have received inaccurate information spread – not by the Yankee Institute, which SEBAC reported to the attorney general’s office for having compromised it’s e-mail system – but “by news media sources and by some agency managers.” Attorney General George Jepsen a few days ago released a report finding that the SEBAC complaint was without merit.
“The directive was necessary,” SEBAC reported on its propaganda site, “because not only have some state managers disseminated inaccuracies about rescinding layoffs, many in the news media have reported myths and distortions about state employees and the tentative agreement.”

Mr. Malloy obliged by supplying a clarifying statement sent by SEBAC to rank and file members who will shortly be voting on Plan A2.

Although the SEBAC site still carries the item reporting its request to the attorney general that the Yankee Institute be prosecuted for having illegally commandeered the state’s e-mail system in order to ventilate its views, the site does not include in full Attorney General George Jepsen’s finding, but then propaganda sheets are not bound by the constraints of responsible journalism.

After 2011 Tax Reforms, Connecticut's Wealthy Still Pay Smallest Share of Income in State and Local Taxes

Despite recent efforts to make the Connecticut tax system fairer, the wealthiest 1% of our residents will still pay only half as much of their income in state and local taxes as the poor and middle class, according to a new analysis by the Institute for Taxation and Economic Policy.

The state and local tax reforms approved in 2011 made Connecticut’s tax system more equitable by generally reducing taxes for lower-income residents, through the earned income tax credit, and raising them among higher-income residents.

These changes were essential to a balanced approach to our economic and fiscal problems that helped protect vital education, health, and other services for families and position Connecticut for long-term economic growth. But even after these changes, our tax system remains highly imbalanced. After accounting for federal deductions, estimates show that Connecticut’s low- and middle-income families will pay between 9.6% and 11.4% of their incomes in state and local taxes, while the top 1% of income earners will only pay about 5.5%.

Few would agree that those most able to pay should contribute less of their income than those least able to pay.

The decision by Connecticut policymakers to increase revenues as part of a balanced approach to the state’s deficit crisis has elicited fierce debate, so it is important to put these changes in proper context. In late 2009, the gap between what the wealthiest 1% paid in taxes as a percentage of income and what the poorest 20% paid was higher in Connecticut than in most other states.Connecticut ranked among the ten states with the highest taxes on the bottom 20%, and among the twenty states with the lowest taxes on the wealthiest 1%. Recent revenue reforms will decrease the proportion of income the bottom 20% of residents pay to 11.4%, from 12.0%, and increase the proportion that wealthier taxpayers pay (for amounts by income group, see table below). Even after these changes, the poorest residents are estimated to pay over twice as much of their income in state and local taxes as the top 1%.





As the table above shows, some taxes, such as sales and property taxes, are regressive, meaning that low income people must pay a greater share of their income on them than high income people. Other taxes, such as the income tax, are the opposite, progressive. Currently, regressive taxes in Connecticut outweigh progressive taxes, which places a higher overall tax burden on low- and middle-income households. The progressive state income tax changes recently passed have brought better balance to Connecticut’s tax system, though the very wealthiest residents still pay far lower proportions than anyone else.

Anti-tax advocates often claim, without strong evidence, that raising taxes on the very wealthy would hamper economic growth and cause a decrease in revenue because of wealth migration. The majority of the evidence in fact points to opposite conclusions. An upcoming review of the literature on so-called “tax flight” finds that the effects of tax increases on migration are, at most, small and lead to significant net increases in state revenue. Taxes, it finds, are simply not a significant factor in decisions about where to move compared to much more important factors like home prices, employment opportunities, and community networks.

Another recent report by the Political and Economy and Research Institute at UMASS Amherst explored tax migration in New England and came to similar conclusions, finding that by raising state revenue and using that revenue to create job opportunities states could actually draw new residents to their states. Finally, a study published in the Summer 2011 issue of Connecticut Economy magazine found that states with an income tax had similar long-term economic growth as states without an income tax.

In wealthy states like Connecticut, regressive taxes are especially troubling because they make the problem of rising income inequality worse. As we continue to reform our state and local tax systems to be more fair and effective, more should be done to equitably distribute state and local taxes.