Proactive businesses avoid tax hikes … for now

It appears Connecticut businesses will avoid a tax increase in 2016, an unsurprising outcome from this year's legislative session, despite a nearly billion-dollar budget deficit forcing lawmakers to layoff thousands of state employees and make deep cuts to other services.

The looming November elections, in which all General Assembly seats will be up for grabs, clearly weighed heavily on policymakers' minds. Coming off the state's two largest-ever tax increases in 2011 and 2015, there was little appetite among even the most liberal legislative leaders to raise taxes again.

It's hardly a time, however, for the business community to breathe a sigh of relief or rest on its laurels. Budget deficits will still likely haunt the state for the next few years, and when the General Assembly convenes in January for the 2017 session, there will be no election hanging over their heads. Calls for raising taxes on businesses and the wealthy will likely reach a fever pitch, particularly in the wake of this year's budget cuts, which are still awaiting final approval in special session (this column went to press May 5).

If this session has taught us anything, it's that individual businesses must make their voices heard publicly if they want to significantly influence tax and spending policy in Hartford. It was, after all, last year's public outcry from the state's largest corporate citizens — General Electric, Aetna, Travelers, among others — over the prospects of $700 million in new business taxes that set the anti-tax-increase tone for this year's legislative session.

GE's decision to move its corporate headquarters to Boston only inflamed that sentiment.

But come next legislative session, the sting of GE's departure will have begun to fade in lawmakers' memories.

In an era of fiscal uncertainty and turmoil, Connecticut companies can no longer simply rely on paid lobbyists to state their case for a fair, predictable and stable business climate. While it may go against conventional PR-wisdom, publicly voicing dissatisfaction with state-level tax policy may be the most effective way for companies to root out proposals that inhibit their growth and investment.

Tough choices, outcomes

To be clear, no one should be cheering about this year's legislative session. Avoiding tax hikes is a positive, but the significant cuts in state spending will be a drag on Connecticut's economy this year. Also, the state's paltry job growth in recent years (Connecticut only added 12,200 jobs in 2015, down significantly from an original estimate of 27,000) will make it harder for the thousands of laid-off state workers to find new jobs in the months ahead.

Indeed, in Connecticut's era of permanent fiscal crisis, there are few good options when it comes to tackling budgets that are structurally deficient. Meantime, the threat from ever-increasing pension and debt costs still looms largely over future budgets.

Relying on tax increases, however, to erase red ink has proven ineffective, both in balancing budgets and promoting strong and consistent economic growth. The state has still not recovered all the jobs it lost during the Great Recession, and many of the new positions we have added pay less than the ones they replaced.

A new report issued by The Business Council of Fairfield County Foundation showed another troubling sign: The state's population declines in recent years involved considerable losses of college-educated residents. The correlation, of course, is that fewer job opportunities lead to fewer highly-skilled people living in the state.

While lawmakers opposed tax hikes this legislative session, the threat of future tax increases is only a few months away. That provides little certainty to businesses. If we revert back to tax hikes in 2017, we will continue to erode our advantages over higher-cost states like New York and Massachusetts, and fall further behind lower-cost U.S. and international destinations. That's a recipe for continued economic regression.

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