With just minutes left in the legislative session, Connecticut lawmakers passed a $1.2 billion tax increase last Wednesday. This tax hike was based on a budget agreement struck last week between Democratic leaders in the legislature and Governor Malloy.
The plan approved by Connecticut lawmakers increases the state’s top income tax rate from 6.7 percent to 6.99 percent. Additionally, the sales tax on some goods was increased, the cigarette tax was raised, and the tax credit available for offsetting local taxes was reduced. But perhaps the most dramatic tax hike was on Connecticut employers. The state tax on data processing will double by October and triple by 2016. The twenty percent surcharge on corporate taxes, which was slated to expire, will be renewed for two more years. Additionally, a shift to a unitary corporate tax will burden businesses that operate across state lines.
Businesses in Connecticut have understandably been critical of this latest tax increase in what is already one of the most heavily taxed states in the union. General Electric (GE), which employs 5,700 workers in Connecticut, immediately voiced their concern about the new taxes. In a letter sent to GE workers, CEO Jeff Immelt made clear that, as a result of this new $1.2 billion tax increase, the company is looking to relocate to a state that is less hostile to employers. Immelt writes:
As a result of this law passing, I have assembled an exploratory team to look into the company’s options to relocate corporate HQ to another state with a more pro-business environment.
GE is not the only company that may flee the state. Another major employer, AETNA, is “looking to reconsider the viability of continuing major operations in the state” according to a company statement. Boehringer-Ingelheim, Travelers, and many businesses have also blasted the tax hike.
Joe Scarborough, host of MSNBC’s Morning Joe and Connecticut resident, railed against the tax increase, saying “it’s hard to imagine things could get any worse”. Scarborough expressed concern that major businesses would leave the state, saying it would be a “tragedy”. Scarborough’s guest, liberal marketing guru Donny Deutsch, put it very simply: “You cannot … have a situation where you’re forcing businesses to leave. You’re going to go out of business as a state.”
This is not the first large tax increase to be signed into law by Governor Malloy. In 2011, Malloy signed a $2.5 billion tax increase. Income, corporate, property, and gas taxes were all raised in what was the largest tax increase in the Nutmeg State’s history.
Currently, Connecticut has the third highest state and local tax burden in the country, the second highest property tax, and the eighth worst business climate. All of these rankings will be made worse by the new tax increases passed by the legislature.
House Minority Leader Themis Klarides, after the bill passed, said that Connecticut “is not the land of opportunity any longer. Some would say this is the land of despair.” And she’s not alone with that sentiment. In a Gallup Poll last year, 49 percent of Connecticut residents said they would leave the state if they could. Thanks to Governor Malloy and the state legislature’s latest actions, Connecticut will be a less attractive place, to live, start a family, and invest.