Many advocates insist that adopting tax reforms will drive businesses out of the state.
The new tax obligations Connecticut wants to impose on its corporations are a growing trend around the nation. And some advocates say it’s a movement that’s long overdue.
The proposed tax reform that’s caused an unprecedented outcry from General Electric and other corporate citizens of Connecticut is a unitary tax, or what’s also known as combined reporting. It applies to companies that do business in many states, and it effectively prevents them from reporting their taxes in the lowest tax states in which they do business. That allows a state like Connecticut to recapture more of the tax revenue that it’s currently missing out on.
Matt Gardner is director of the Institute on Taxation and Economic Policy, and he explained it this way: “If you think it’s wrong for companies to be able to shift their profits freely from state to state, on paper, without actually moving employees, without actually moving production, then this reform is a no-brainer,” he told WNPR.
Gardner points out that in a budget crunch such as Connecticut is facing, offering a tax break to corporations simply shifts the burden elsewhere, usually onto middle income earners, a decision which may also have significant economic development implications for the state.
"You look at a company like General Electric, which in 2014 earned $4.2 billion in U.S. profits, and didn’t pay a dime of state income taxes on those profits. How much lower can state taxes go for these guys?" said Gardner. "It seems odd that a company that has been so spectacularly successful in avoiding state corporate taxes simply can’t bear to pay a little bit."
But many business advocates insist adopting such reforms will make Connecticut uncompetitive, and drive businesses out of the state. Fairfield-based businessman and former gubernatorial candidate Ned Lamont told WNPR’s Where We Live that reality is now.
"These guys are already moving. They’re moving maybe not their actual corporate headquarters, but the jobs and the high end manufacturing, and a lot of the opportunities," Lamont said. "So this is already happened – these are not just idle threats and they’re putting a gun to our head."
But Matt Gardner said that with roughly half of states now having enacted combined reporting, and more and more considering it, he believes the balance may shift.
Update:
A GE spokesman responded to this story with the following statement:
"GE paid $3.0 billion in cash income taxes worldwide last year, including in the U.S. In addition, GE paid more than $1 billion in other U.S. state, local and federal taxes."
However, Connecticut figures are not available, as the corporation does not break down its tax liabilities on a state-by-state basis.
