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Voices Speaking

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
September 23, 2016

Investing in Connecticut: taxes and economic prosperity

If you read what some commentators are saying about our state, you might think that Connecticut having one of the nation’s highest standards of living is just an accident. To mark the anniversary of the income tax last month, observers presented a story of doom and gloom entirely attributable to state income taxes.

What these columns are missing, however, is any thought to what those taxes translate into in terms of services, investments and economic prosperity. Grover Norquist, for instance, pointed to Texas and Florida – which have no state income taxes – as examples of what states can accomplish if they liberate themselves from the responsibility of investing in the future. Well, let’s take a look.

The poverty rate in Connecticut is fourth lowest in the nation. In Texas and Florida it’s much higher. Connecticut is fourth in the share of the population holding a graduate or professional degree. Florida and Texas are well below the national average. In only three states do a higher percentage of people lack health insurance than in Florida; one of them is Texas, which leads the nation in this shameful statistic. Meanwhile only nine states have a lower share of people without health insurance than Connecticut. You get the point. Connecticut may have higher taxes, but that is because the state invests in the services essential to sustained economic success.

If Connecticut were to follow a low-road model, it would jeopardize the competitive advantage it has in a highly educated and highly productive workforce that is attractive to high-wage and high-skill employers, who in turn benefit from a return on the investment of their business tax dollars in the form of roads, bridges, and other public infrastructure, safe neighborhoods, and education.

But Norquist and other commentators are not just wrong about what makes a state’s economy strong; he also errs when he and others claim that taxes in Connecticut drive residents to leave.  Norquist inaccurately characterizes a net loss of roughly 8,000 households per year as an escape from the state income tax. In fact, net annual movement from Connecticut declined steadily in the first 10 years after the tax was enacted – hardly consistent with Norquist’s argument. And, more than eight in 10 of the households that left Connecticut between 1992 and 2014 were replaced by households moving in. If taxes are as significant a driver of state-to-state moves as Norquist wants to believe, why would so many people be moving to Connecticut?

In fact, 38 percent of all residents leaving the state moved to Florida, the leading destination for virtually all northeastern and rustbelt states – including New Hampshire, which doesn’t have any broad-based income tax. Common sense says many of these people leaving Connecticut are retirees seeking warmer weather, who likely would move regardless of Connecticut tax levels.

Norquist errs again when he asserts that those who moved out of the state took billions of dollars of income with them, further depleting the state’s finances. It’s a claim that former Tax Foundation economist Lyman Stone has written rests “on an egregiously wrong use of the data” by analysts who “have either failed to perform the most basic due diligence . . . or else actively mislead their readers.”  Think about it: the vast majority of people who leave a state hold jobs that will be filled by people joining the labor force from within the state or moving in, resulting in no “loss of income” at all.

You can throw as many arguments you want against the wall and none of them stick. Connecticut is a better place to live because of the public investment that comes from everyone pitching in for the common good. Neither residents nor businesses are “damaged” by our state’s income tax. To the contrary, it’s the children growing up in poverty in states that don’t invest in shared prosperity and quality of life that will have a hard time reaching their full potential.

Issue Area:
Budget and Tax
Tags:
Connecticut, education, insurance, investments, services, taxes
December 20, 2016

Connecticut among states with highest income inequality

Connecticut is among the states with the highest income inequality in the country, according to a new report from the Center on Budget and Policy Priorities. Connecticut ranks third in the country, with its richest residents— the top five percent of households— having average incomes 17 times as large as the bottom 20 percent of households and five times as large as the middle 20 percent of households. The top five percent of Connecticut’s households receive 20 percent of the state’s income, even without counting capital gains. 
The report, “How State Tax Policies Can Stop Increasing Inequality and Start Reducing It”, also shows that the concentration of income among the wealthiest residents is striking in every state – reflecting three and a half decades of unequal income growth.  The top 1 percent’s share of income rose in every state and the District of Columbia — and it doubled nationally, from 10 percent to 20 percent — between 1979 and 2013, per a recent analysis of IRS data.

States have tools to reduce the growing inequality. The report offers recommendations about how state tax policies can be used to reverse the trend, including broadening the sales tax base to include services, strengthening business taxes by eliminating costly business tax breaks and establishing strong minimum taxes to broaden the base, levy higher taxes on high-income taxpayers, and retain or expand taxes on inherited wealth,

You can download the full report here. Click here for Connecticut-specific data.

Issue Area:
Family Economic Security
Tags:
Connecticut, income, inequality, one percent
April 11, 2017

Interactive Map: Governor's Cuts to Cities and Towns

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The Governor’s budget would reduce the Earned Income Tax Credit, remove parents from HUSKY A, eliminate property tax support for the middle class, and cut municipal aid to 141 towns.

Statewide, proposed cuts to the EITC and the property tax credit are equal to a tax increase of $93 for low-income families and $157 for middle-income families. At the same time, the Governor’s estate tax proposal would be equal to a tax break of $100,000, on average, for some 600 taxpayers.

In our new interactive maps you can look at the town-by-town impact of these cuts on the property tax credit and EITC, as well as Care 4 Kids and changes to municipal aid funding. Information is available on how many residents in each town benefit from the EITC, property tax credit, Care 4 Kids and Husky A, another program at risk from cuts. 

We also created Individual fact sheets for each House and Senate district so you can share that information with your legislators. You can download them here

For more information on the Governor's Budget proposal, you can find our full analysis here

Issue Area:
Budget and Tax
Tags:
budget, Connecticut, interactive, maps, municipal, town
June 26, 2017

Webinar: A Better Approach for the State Budget

Connecticut's budget is the clearest statement of its policy priorities. As such, it should prioritize revenue and expense options that advance long-term inclusive economic prosperity, improve equity, and prepare our children for success.

The current budget proposals adopt an austerity mindset.  

They contain little new revenue and, to the extent they do bring in additional revenue, do so by raising taxes on low- to middle-income families by cutting or eliminating the earned income tax credit and property tax credit. At the same time, they provide some 600 of the state's wealthiest families with an average tax break of $100,000. That's not shared sacrifice. It is not a recipe for long-term growth and shared prosperity. 

In this webinar, we provide an overview of the state budget, solutions to avoid yet another a cuts-only approach, and ways to take action. You can watch the presentation below. Click here to download the slides.

Issue Area:
Budget and Tax
Tags:
#CTbudget, budget, Connecticut, Webinar
July 13, 2017

Infographic: a Better Approach to the State Budget

The state budget is the clearest statement of Connecticut's policy priorities. Connecticut needs a balanced approach that combines strategic spending with new revenue. See the our infographic below and full Revenue Options brief for more detail.

Click here to download the PDF.

Issue Area:
Budget and Tax
Tags:
budget, Connecticut, priorities, revenue, taxes