Don’t blame GE for leaving CT

John Horak

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By John Horak

If GE executives have second thoughts about their decision to leave Connecticut, all they need to do to restore peace of mind is read editorial pieces that have been published recently that disparages them and their company. An example is an op-ed by Sarah Littman (“Who are the Real Moochers?”), which appeared on the CT News Junkie's website Jan. 22.

Littman takes State Rep. Themis Klarides (R-Derby) and State Sen. L. Scott Frantz (R-Greenwich) to task for arguing that GE's exit is the result of the state's lack of leadership and contempt for private-sector business, and for their warning that the state's excess borrowing and high taxes will drive more companies out of state. In Littman's words, they “have the barefaced chutzpah to stand there and claim this decision is due to Connecticut taxes when GE is one of the nation's most notorious corporate tax avoiders.” She also chastises Massachusetts for handing GE subsidies (corporate welfare) worth $181,000 per job to induce GE's move to Boston.

Littman's complaints about corporate tax avoidance and welfare are popular because they are seductively simple and provide an easy target. It is easier to cast GE as an entity of ill repute selling itself to the highest bidder, than it is to do the hard work necessary to get our state's fiscal house in order. However, my purpose is to demonstrate that her widely held, but facile grievances fail to make the case that Klarides and Frantz are wrong about Connecticut's failed leadership and antipathy to business.

First, I am a tax lawyer by training, and in my 35 years in practice I have never met any individual, corporation or nonprofit, whether rich, poor, big, small, Republican, Democrat or socialist, that did not do his, her, or its best to avoid taxes. Tax avoidance is legal — and means planning your affairs (including where you reside) to reduce your tax liability by any means the law allows (such as by claiming available deductions and exemptions). On the other hand, tax evasion (avoiding what the tax law requires) is a criminal offense (such as claiming a personal exemption for children who don't exist).

Moreover, the tax question must be examined in the context of the state's accumulated liabilities to its bondholders and pension funds (totaling $ 70 billion or so). These must be paid with someone's money. So the tax question is whether we trust the leaders who got us into this situation not to double down on their spendthrift habits with new or additional taxes. Many people have asked me why investors keep buying our bonds if we are in such bad shape. The answer, I suspect, lies in the state's ability to increase existing taxes and, with a simple majority vote in the legislature, impose a state-level property tax on homes, cars, equipment, and any other property on top of municipal property taxes already in place. At the end of the day the buck stops with the taxpayers.

Second, I abhor corporate welfare as a means of attracting business to the state. In my perfect world, states would attract businesses solely on the basis of the health of their culture, economics and management. But the reality is that the corporate welfare genie left the bottle years ago, and we have to deal with him and every other state playing by his rules.

Consequently, the real question is how well our state's leaders play the business recruitment game. Two recent events indicate they do so poorly. The first is the notorious mistake that was made during the state's presentation to GE executives (in an effort to convince them to stay) in which the written materials included a picture of a Pratt & Whitney jet engine. This was a high school-level blooper — the equivalent of a typo-laden cover letter and resume submitted to a prospective employer.

But the irony drenched example is what happened with Tenet Healthcare a little over a year ago. Texas-based Tenet had reached an agreement to acquire five Connecticut hospitals, convert them to for-profit entities and invest $550 million of its own money in the state. The proceeds of the acquisitions would have poured money into community healthcare foundations, and new investments would have upgraded and modernized healthcare facilities. Tenet walked away from the deals after the state imposed onerous restrictions on one of its acquisitions.

Meantime, the state's response to our hospital's continuing red ink is to tell their CEOs to take a pay cut. Now, that is chutzpah on a grand scale — one that we may not be able to afford any longer.

John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. His opinions are his own.

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