The Wall Street Journal’s editorial board explains the Connecticut strategy succinctly when it writes “Thus we have Connecticut’s business model: Raise costs for everyone and then leverage taxpayers to provide discounts for a politically favored few.”
By raising taxes on all corporations and individuals, Connecticut makes owning a small business very difficult. If a major corporation can lobby for better tax treatment, small businesses are even less capable of competing. Small businesses are the powerhouses of the American economy, putting them at a disadvantage to big corporate interests is a losing strategy.
And now, even United Technologies, one of Connecticut’s biggest business interests is heading for the exits. The conglomerate has called Farmington, CT, home, but as part of its plan to buy Raytheon, the company will relocate its headquarters to Boston.
The board writes:
United Technologies last week announced plans as part of its merger with Raytheon to relocate its headquarters to Boston from Farmington, Connecticut. CEO Greg Hayes says the move isn’t motivated by taxes. But as a new study documents, more businesses are leaving Connecticut as they get walloped with higher taxes that are bleeding the state.
Democrats in 2015 imposed a 20% surtax on top of the state’s 7.5% corporate rate, effectively raising the tax rate to 9%. They also increased the top income tax rate to 6.99% from 6.7% on individuals earning more than $500,000. The state estimated the corporate tax hike would raise $481 million over two years, but revenue increased by merely $323 million—$161 million a year—according to a new Yankee Institute report.
Meantime, the state’s Department of Economic and Community Development, whose job is to strengthen “Connecticut’s competitive position,” in 2016 alone spent $358 million (mostly on direct payments and loans) to induce businesses to stay or move to the state. This means that Connecticut doled out twice as much in corporate welfare as it raked in from the corporate tax increase.
As the Yankee Institute notes, the business handouts cost even more than that since the state tapped bond funds to pay for them. Thus we have Connecticut’s business model: Raise costs for everyone and then leverage taxpayers to provide discounts for a politically favored few. A business that operated like this would lose customers and eventually go bankrupt.
That may be where Connecticut is headed. The state has lost population for the last five years. In 2016 GE announced it would move its longtime headquarters from Fairfield to Boston. Hallmark, RBS, Bristol-Myers Squibb , Boehringer Ingelheim Pharmaceuticals andRogers Corp. have also announced job cuts or moves. Alexion Pharmaceuticals , which received $26 million from the state, checked out of New Haven in 2017.
The exodus has depressed tax revenue. While United Technologies will continue making jet engines in Connecticut, at least for now, 100 high-paying corporate jobs will move to Boston. Massachusetts has a flat 5.1% income tax.
Read more here.
I have regularly warned about the strategy Connecticut lawmakers are attempting:
- Despite Past Failure, Connecticut Taxes More and More
- Connecticut Just Doesn’t Learn: Now Targets the Middle Class With New “Sin” Taxes
- Connecticut: Big Government Utopia Begins to Crack
- Despite its High Taxes, Connecticut Can’t Pay its Bills
- Wealthy Connecticut Can’t Tax its Way to Stability
- Connecticut’s Exodus Driven by Punishing High Taxation
In the internet age, American businesses can setup shop in states that treat them best. Geographical restraints are diminishing as a concern for businesses and wealthy individuals who want to protect their wealth and incomes.
That’s why I encourage everyone to investigate thoroughly before they choose where to retire. You should too.