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Voices Speaking

November 24, 2015

Why Connecticut’s Business Climate is About More than Corporate Taxation

Ellen Shemitz, J.D.

A basic line learned by every first year law student is that “bad facts make for bad law.” This maxim holds true in the legislature as well as in the courts. Take the oft repeated claim that Connecticut should give big business tax breaks to remedy an allegedly “bad business environment.” Before those claims drive any legal changes, let’s look at the underlying data: data which simply does not support the complaints of special interests. 

Fact #1: Most Connecticut businesses reported a net profit last year. The percentage of Connecticut businesses that record net profits has increased in recent years, and is higher today than at any point since 2008.

Fact #2: Business in Connecticut benefits from a highly educated workforce. Nearly 37% of Connecticut residents age 25 and older hold at least a Bachelor’s degree, compared with a national average of less than 29%. Visualizations of the most recent US Census data show that the proportion of state residents with degrees in higher education has more than doubled since 1970.

Fact #3: Business in Connecticut benefits from a highly innovative workforce. Bloomberg Rankings ranks Connecticut fourth in business innovation, noting that STEM professionals comprise 2.72% of the state’s population with another 10.2% holding science and technical degrees.

Fact #4: Business in Connecticut benefits from a high rate of insurance coverage and a healthy population. Health matters to business. According to the Centers for Disease Control, “indirect costs of poor health including absenteeism, disability, or reduced work output may be several times higher than direct medical costs.” More than 93% of state residents carry health insurance in Connecticut. The oft-cited Measure of America 2013-2014 awards Connecticut first place on its American Human Development Index, with a life expectancy at birth topping 80.8 years. 

Fact #5: Connecticut has yet to fully recover from the Great Recession, with its rate of recovery slowed by long term changes in the state industrial base. 

While Connecticut has yet to recover fully from the Great Recession, its challenges have more to do with long term changes in the economy and with the aging of the state population than with tax policies.  Indeed, the conflicting measures of business taxation cited by detractors reach widely divergent conclusions, ranging from the Council on State Taxation’s index comparing state taxes to productivity, which ranks Connecticut second best in the nation, to the Laffer-American Legislative Exchange Council’s Economic Competitiveness Index which ranks Connecticut forty-seventh.

Business climate does, of course, matter.  We need a healthy economy to assure gainful employment and economically secure families. But business climate is about more than taxes. A healthy business climate requires good transportation and a highly educated workforce: both of which depend upon strategic planning and public investment.  For our state to thrive, we need to support a state budget that invests in human capital and regional infrastructure: a budget that builds toward a shared prosperity and sustainable growth rather than growing wealth disparity and intergenerational poverty.

Issue Areas:
Budget and Tax, Family Economic Security
November 19, 2015

State of Working Connecticut Interactive Graph

Six years after the official end of the Great Recession, Connecticut has yet to fully recover. Despite lower levels of unemployment, the recovery has left behind many Connecticut residents, in particular people of color, young workers, those paid low wages, and many with relatively low levels of education. These findings and more are accessible in our annual State of Working Connecticut report, and the full data on which they are based are available below.

Data Visualization

These data are available below through an interactive graph. Underneath the graph, you can choose an economic indicator (e.g., unemployment), and then select the regions and demographics about which you'd like to learn more. A slider along the bottom allows you to select the range of years, back to 1979. To view wages at the 10th, 20th, 30th, etc. percentiles, select the "Wage Deciles" indicator, along with the deciles you'd like to view in the demographics drop-down menu.

Not all demographics are available for every economic indicator. For example, only overall long-term unemployment is available on the graph, and the "wage percentile" demographics are only useful for the "wage deciles" measure. Let us know what you notice in these trends in the comments below!

Methodological Notes

  • "Peer states" refers to Massachusetts, New Jersey, New York and Rhode Island
  • Missing data reflect survey sample sizes that are too small
  • Wage data are measured in 2014 inflation-adjusted dollars using CPI-U-RS
  • Source: CT Voices and Economic Policy Institute analysis of U.S. Census ACS, CT Department of Labor, and U.S. Bureau of Labor Statistics data
Issue Area:
Family Economic Security
November 3, 2015

Combined Reporting: Fair Taxation for Shared Prosperity

Declining revenue projections – contributing to Connecticut’s increasing budget deficit – illustrate why recent legislation to raise revenue by making business taxation more equitable was the right course for the state to take, even as some big corporations step up their attacks.

After a decade of serious discussion, the Connecticut General Assembly wisely conformed our state’s corporate income tax policy to that of 24 other states and D.C. – including every other New England state – by adopting a common sense policy known as mandatory combined reporting.

Despite the legislature’s decision to adopt combined reporting, some corporations that exploit its absence to avoid paying their fair share are making a last-ditch effort to convince policymakers to reverse the decision.

That would be a mistake. Let’s remember again why we adopted combined reporting:

  • Combined reporting nullifies a host of tax-avoidance strategies in one fell swoop, some of which can’t be stopped in any other way. Among the worst of these strategies is offshore profit shifting, using international tax havens to avoid state and federal taxes. This practice has increased dramatically over the past 35 years, with 20 percent of all U.S. corporate profits now booked in offshore havens, a tenfold increase since the 1980s.  In Connecticut alone, Fortune 500 companies hold $185 billion in offshore profits, with 64% of those holdings attributable to one company: General Electric (which has the second largest amount of profits held offshore by any U.S. company). Only in California and New York do Fortune 500 companies hold more profits in offshore tax havens.

  • Combined reporting levels the playing field for small businesses that typically operate as a single corporation or otherwise lack the resources to shift profits to out-of-state subsidiaries. The absence of combined reporting creates an artificial advantage for the large multistate corporate competitors. The Small Business Administration has reported that “states with combined reporting rules tend to have more small business activity.”
  • Combined reporting raises revenue needed to help preserve critical public services – many of which benefit businesses, like schools that produce skilled workers – and arrests future erosion of the corporate income tax base.

Connecticut companies seeking to maintain their competitive advantage argue that combined reporting will hurt state economy, but evidence is to the contrary:

  • From 2000 to 2014, 10 of the 15 states that had the best record of retaining manufacturing jobs required combined reporting, while just two of the 15 states that lost the greatest share of manufacturing jobs were combined reporting states.
  • A 2010 Voices analysis of 37 for-profit companies with more than 1,000 employees found that 32 (85%) of these companies already operated in states with mandatory combined reporting and 27 of these companies operate in five or more combined reporting states.
  • The more than 1,200 Connecticut companies that already elect combined reporting make up just 3 percent of total returns, while representing 46.3% of total state corporate tax liability.
  • Along with 24 other states and D.C., including every state in New England, combined reporting exists in so-called business friendly states, such as Texas, Utah, and Arizona.

Combined reporting closes tax-avoidance strategies, is small-business friendly, and raises much-needed revenue for the public good.  If pressure from a small number of large corporations seeking to maintain their unfair advantage over small- to medium-sized businesses succeeds in killing combined reporting it will be a big step backward for Connecticut. Every company that wants to benefit from all that Connecticut has to offer, including our highly educated workforce and our enviable quality of life, should contribute their fair share in return.

See the full policy brief here.

 

 

Issue Areas:
Budget and Tax, Family Economic Security
Tags:
budget, combined reporting, Connecticut, taxes

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