🔒Bordonaro: Small business relief should be part of state tax cut plans

An election year has engendered rare bipartisan support on tax policy at the state Capitol: Republicans and Democrats both support tax cuts amid a multibillion-dollar budget surplus and plush rainy day fund.

Leaders in both political parties have already unveiled tax cut proposals and more are likely to be discussed in the weeks and months ahead.

While making Connecticut a more affordable place to live and operate a business is a good thing, lawmakers should not throw caution to the wind. While state budget analysts are projecting a $2.5 billion surplus at the end of this fiscal year, and the state currently has a $3.1 billion rainy day fund, our long-term pension debt remains a threat to future fiscal stability.

Last year Connecticut used surplus funds to make an additional $1.6 billion payment toward its $40 billion pension debt, which helped secure longer-term savings for taxpayers.

While it may not be a sexy talking point on the campaign trail, further paying down long-term liabilities should be part of the conversation at the state Capitol. Short-term tax cuts may provide some positive headlines but they may not last, and business decision makers have a longer-term outlook on fiscal stability when deciding where to invest capital and other resources.

But if we are going to talk about tax cuts, small business relief should be part of the equation, particularly efforts to pay down the state’s unemployment insurance fund debt. That’s something House Republicans recently said they would support as part of a broader $700 million-plus tax cut plan.

During the pandemic the state borrowed $850 million from the federal government to prevent the unemployment trust fund from going broke and to keep paying out jobless benefits. But businesses, which fund the state’s unemployment insurance program, have to pay that money back, and they face what amounts to an extra tax later this year to begin that process.

Republicans are proposing to use $300 million in surplus funds to help further pay down that debt. (That would be on top of the $155 million in federal relief funds used last year to repay some of the unemployment insurance borrowings.)

House Republicans also recommended another business tax credit in addition to increasing the annual property tax credit from $200 to $500.

Lamont has proposed a more modest $336 million tax cut plan centered on capping car tax rates and boosting the property tax credit from $200 to $300. Lamont would also widen access to the property tax credit and another tax credit that benefits businesses that help their employees repay student loans.

Meantime, the Connecticut Business & Industry Association is lobbying for a host of other tax cuts, including restoring the pass-through entity tax credit to its original 93% level, eliminating the corporate tax surcharge and expanding the R&D tax credit to small businesses, among other proposals.

Some may argue that Connecticut businesses have already benefited from federal relief programs, like the Paycheck Protection Program, and that any budget surplus should go toward helping other constituents, like low-income families that are still struggling economically and in other ways from the pandemic. It’s a legitimate case to make, but a lot of the current surplus is being spurred by temporary federal relief dollars that will disappear in the years ahead.

Funding new social programs with one-time or short-term revenues can lead to future budget shortfalls, and lawmakers have shown an unwillingness in the past to cut programs once they are in place.

Despite seeing a population boost over the last two years, Connecticut’s economy is emerging more slowly from the pandemic than the rest of the nation.

As we head into warmer weather, and what could finally be the tail end of COVID-19, any efforts to provide businesses tax relief could help propel the economy in the months ahead.