Joachim Hero, MPH, Orlando Rodriguez, MA, & Shelley Geballe, JD, MPH
Business tax credits are a form of government spending: they often result in a net loss of Connecticut state revenue and, since the state budget must be balanced, must be offset by cutting funding for services or by raising taxes on other taxpayers. Connecticut has spent hundreds of millions of dollars in recent years awarding tax credits to a small fraction of the corporations that do business in the state. As Connecticut confronts its largest state budget deficit in history in 2012, all forms of spending, including economic development efforts using tax credits, must be reviewed critically and comprehensively.
This report on the state's growing use of tax credits finds:
- Connecticut's inflation-adjusted revenue loss from corporation business tax credits has increased by an estimated 60-fold from 1987 to 2009.
- For every $100 in corporation business taxes that were projected for Fiscal Year 2009, there were an estimated $54 that were not collected because of tax credits.
- No comprehensive economic development plan seems to guide the adoption of new tax credits.
- Many existing credits are ineffective, and some may be damaging to Connecticut's economy.
- Tax credits favor certain industries and companies over others. In 2003, thirteen corporations claimed tax credits equal to about one-quarter the total corporate tax revenue lost through tax credits.
- Only one-third of Connecticut's business tax credits put a ceiling on the total amount of credits that can be claimed in a given year. As a result, the state's total revenue loss through tax credits is open-ended.
- Twelve tax credits are available to corporations even if they have no Connecticut business tax liability to offset. These credits are either transferable to other businesses with tax liability or can be sold back to the state.
- There is no on-going process for the review of business tax credits or the repeal of those credits with inadequate economic return.
- Tax credits reduce the transparency and accountability of the state's economic development efforts.
- Issue Area:
- Budget and Tax