Kick Starting Connecticut’s Economy

A recent nationwide study commissioned by the Council on State Taxation, representing nearly 600 corporations doing business in many states, compared taxes and productivity and concluded that in 2011 Connecticut businesses shouldered the third lowest tax burden in the nation, behind North Dakota and Oregon. The $7.4 billion in taxes levied by the state and municipalities on Connecticut businesses in 2010-2011 represented just 3.6 percent of their gross state product. Compared with New Jersey, New York, and Rhode Island with tax/productivity ratios of 5.1 percent, 6.2 percent, and 5.6 percent respectively, Connecticut might appear to be a business paradise. But the numbers do not tell the whole story.

If we are taking relative measurements, there is good news in Connecticut’s economic numbers. Analysts at the US Department of Commerce have put the state in the top quintile of all 50 states in economic growth in 2011, pointing out that the state has added 22,000 jobs since January 2011. But taking into account the 120,000 jobs the state lost in the recession, this good news fades to silver lining status.

The legislative session on job growth last fall came up with more than $250 million in business and educational grants and subsidies designed to make the state more attractive to employers. The harsh reality, however, is that like the rest of the country and most of the world, Connecticut continues to face fundamental economic problems that do not register in surveys of relative productivity. The legislature’s jobs initiative last year accompanied a number business tax hikes, including a 20 percent surcharge on corporation taxes for 2012 and 2013, a sales tax increase from 6 to 6.35 percent, and a $40 million increase in the unemployment compensation tax. Plus, everything costs more in Connecticut — fuel, electricity, housing, food. Add this to a highly compensated workforce, and the cost of running a successful business in the Nutmeg State requires immense reserves of our vaunted Yankee ingenuity.

Kick-starting the state’s economy will ultimately require the kind of genius and efficiency that seems beyond the ken of politics and the public sector. Connecticut’s ace in the hole, however, has always been its people, who are today as highly educated and innovative as they have ever been. The extent to which our state and local governments can tap rather than impede that resource will determine whether the state becomes in reality the business paradise it aspires to be.