For the second straight year, the conversation at the start of the legislative session is focused more on tax cuts than hikes. It’s a refreshing shift for a state that for years suffered from fiscal instability that led to several major tax increases last decade. An influx of federal COVID-relief money, a stock market that […]
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For the second straight year, the conversation at the start of the legislative session is focused more on tax cuts than hikes.
It’s a refreshing shift for a state that for years suffered from fiscal instability that led to several major tax increases last decade.
An influx of federal COVID-relief money, a stock market that performed well during most of the pandemic, and fiscal guardrails adopted in 2017 have helped the state record surpluses, replenish its rainy day fund and pay down some long-term pension liabilities.
That allowed lawmakers last year to approve $600 million in tax cuts, mostly benefiting individual taxpayers.
This year Gov. Ned Lamont has said he would support an income tax cut for middle-class families, likely targeting joint filers earning up to $150,000.
Republican lawmakers last year pitched a similar proposal that would have reduced the income tax rate from 5% to 4% for individuals earning less than $75,000 and joint filers earning less than $175,000 annually.
Lowering Connecticut’s cost of living is smart policy, especially since it’s been discussed as a major factor impacting the state’s workforce shortage. High housing and other costs are seen as detriments to Connecticut’s ability to grow its population, something that’s desperately needed as Baby Boomers increasingly reach retirement age.
But policymakers should also consider ways to reduce the cost of doing business in the state. While residents have been impacted by inflation and escalating housing costs, businesses, especially small employers, have faced similar, even greater challenges, including rising material, wage and healthcare costs.
Despite passing a historic tax cut last year, the Connecticut Business & Industry Association called the 2022 legislative session “disappointing” because lawmakers failed to provide much support to businesses.
If Connecticut is serious about improving its ranking in CNBC’s annual “Top States For Business” report, it will have to lower business costs. Connecticut ranked 45th nationally in the cost of doing business category and fell to 39th overall in last year’s ranking.
What can the legislature do?
I asked CBIA CEO Chris DiPentima what his organization will be looking for during this year’s legislative session.
He said CBIA will lobby for extending the R&D tax credit to pass-through entities, fully restoring the pass-through entity tax credit, additional funding for the unemployment trust fund so businesses avoid a loan surcharge and eliminating the sales tax on training programs.
CBIA will also push for increasing the commercial battery storage incentive program to help lower energy costs.
To his credit, Lamont seems receptive. On Jan. 18, he announced his first legislative proposal of 2023 would be to restore Connecticut’s pass-through entity tax credit to its original level of 93.01%, which would enable small business owners to claim a larger credit on their personal returns.
He also told the Hartford Business Journal in December he would consider allowing the expiring corporate business tax surcharge to sunset.
Of course, as lawmakers consider tax cuts they still need to focus on maintaining fiscal stability. While Connecticut is enjoying a run of surpluses, we know they won’t last forever. Passing tax cuts only to eliminate them years later only creates uncertainty for businesses and residents.
Lawmakers should only consider tax relief that is sustainable and provides the biggest economic return for the state.
Given the longer-term budget uncertainty, lawmakers should also consider proposals that would lower business costs without reducing tax revenue.
DiPentima said he has a few suggestions, including reducing the number of years for transferring out-of-state occupational licenses, which would make it easier for multistate businesses to add employees in Connecticut.
He also said lawmakers should avoid any new employer mandates that add administrative burdens and costs on small companies.
With any legislative session, the General Assembly has an opportunity to improve Connecticut’s long-term economic prospects. Let’s see if they can take advantage during a time of fiscal stability.
