It won't be confused with the storming of the Bastille or the proletariat assault on the Winter Palace. But recent events in Connecticut suggest corporate America is taking to the streets in response to proposed dramatic tax increases. In a rare exhibition of public lobbying, three corporate giants threatened to leave if the state enacted the tax increases. General Electric, Aetna Inc., and Travelers all issued public letters to Gov. Dan Malloy (D) and the General Assembly saying they would leave the state if the tax bills are signed into law.
These aren't small-time companies -- they are household-name, Fortune 500 corporations that have called Connecticut home for decades. Their threat has been prominently featured in the general press and on cable news. The message is clear: Businesses have options and will move to sunnier tax climates.
Noting the state's sluggish economy, the corporations questioned the wisdom of increasing the tax burden on some of Connecticut's largest employers. GE, for example, has nearly 6,000 employees in the state. The corporations' concerns were echoed by the Connecticut Business and Industry Association and other organizations. But it wasn't only big business objecting. The National Federation of Independent Business said it was "exhausting for small business owners to continue to watch as lawmakers in this state make the economic climate less and less conducive to success."
On June 3 the legislature passed HB 7061, which, if enacted, would significantly increase business taxes in the state. The law mandates combined reporting, extends and increases the corporate tax surcharge, and limits the use of net operating losses. The law would also increase personal income taxes, which the business community is also not happy about. All told, the increases would amount to $2 billion in new revenue.
The question is, will businesses flee Connecticut as a result of the tax increase? Connecticut already has a terrible tax business climate (the Tax Foundation ranks it 42nd).
In the short run, a mass exodus would seem unlikely. There is a big cost to relocating. And corporations, especially Fortune 500 companies, are adept at dealing with new tax challenges. Everybody in the business knows how good GE is at legally minimizing its tax burdens. And remember that the people who run corporations tend to live nearby. Most executives would not be eager to leave their posh neighborhoods, tony schools, and country clubs.
But we need not answer that question. Malloy has said he has listened to the business community and wants to change the business tax increases. He said he wants to pare back and delay some of the provisions. In fact, he is willing to cut state spending to do so. A special session of the legislature would be necessary to adopt the changes. It is unclear whether the changes proposed by Malloy would be enough to mollify the business community. Other states have taken advantage of the controversy and sent representatives to Connecticut to lure disgruntled business leaders. There is no shortage of states willing to throw money at them through tax breaks. Indeed, it is ironic that most states are tripping over themselves to reduce the tax burden on corporations (advantageous apportionment formulas, incentives, lower rates), while Connecticut is taking the opposite approach.
This post is an excerpt of an article that appeared in State Tax Notes.