Connecticut in Bottom 10 For Business Tax Climate
Other states, like New York, enacting significant tax reform
EAST HARTFORD – While other states are starting to initiate significant tax reform, Connecticut still has not done anything to make its tax climate more business-friendly, despite its placement at the bottom of several rankings and its slow economic growth.
Today the Tax Foundation released its 2015 State Business Tax Climate Index. Connecticut was ranked 42nd out of the 50 states.
“Connecticut loses too many jobs to other states because of its high-tax environment,” said Carol Platt Liebau, president of the Yankee Institute. “We want our children to stay and work in Connecticut, but if our policies keep driving businesses to other states, there just won’t be enough jobs here.”
“With elections just one week away, it’s important for candidates to explain exactly how they plan to improve the economy and create jobs through better tax policy,” Liebau said. “The example of North Carolina shows this can be done.”
Several states enacted significant reform this year. North Carolina was able to change its ranking from 44th place last year to 16th place this year because of the tax reform it enacted, including adjustments to its personal income tax and corporate income tax rates and structure.
Here Comes New York
Although New York is still ranked 49th, its ranking is expected to improve in the coming year because of tax reform enacted there last year. Gov. Andrew Cuomo received an award this year from the Tax Foundation for the state’s efforts. However, those reforms were not all included in this year’s business tax rankings because they have not all gone into effect. New York’s corporate income tax rate, once fully enacted, will drop to 6.5 percent, among many other significant changes.
“Here comes New York,” Liebau said, “and Connecticut had better watch out. Up until now, our state has benefited from the many New York firms who came here for a slightly friendlier business climate. With New York’s reforms, this ‘free pass’ may be coming to an end.”
High Taxes Across the Board
Although state officials like to claim that the state has a friendly business tax environment because of its 7.5% corporate income tax rate, which places it about in the middle of other states, our state’s very high property taxes and relatively high taxes across the board account for Connecticut’s rank toward the bottom.
Other factors that affected the state’s placement include:
- Connecticut has the second highest per capita property taxes in the nation;
- The state levies sales taxes on many business-to-business transactions;
- Several other states don’t have at least one of the major taxes (corporate income tax, personal income tax, sales tax), which significantly improves their ranking;
- We are worst in the nation for our capital stock tax rate, which is a tax on business wealth;
- We are the only state with a gift tax, which significantly effects small businesses;
- Our alternative minimum tax for personal income taxes is also detrimental to small businesses, many of which are taxed at the personal income tax rates.
The study also says that business incentive programs do less to help states attract and retain businesses than an overall business-friendly tax environment.
In other words, it is better to have a long-lasting business-friendly tax structure than to have short-term programs like Connecticut’s First Five program.
The study notes that companies are more likely to move from one state to another than from the United States to foreign countries. As a result, Connecticut’s low ranking compared to other states makes it difficult to remain competitive and attract jobs.
The study is here: http://taxfoundation.org/article/2015-state-business-tax-climate-index
The Tax Foundation’s press release is here: http://taxfoundation.org/sites/taxfoundation.org/files/docs/Connecticut-Ranks-42nd-Best-on-Business-Taxes.pdf