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Why Connecticut’s New Revenue Measures Make Sense

A handful of major corporations in Connecticut have harshly criticized revenue increases in lawmakers’ new budget, which are aimed at closing the state’s budget shortfall while protecting funding for education and other investments in its people.  But the three provisions that have drawn the most criticism are reasonable policy choices that will help Connecticut remain attractive to people and businesses:

  • Closing a loophole that enables corporations to artificially move profits out of the state in which they’re earned and into states where they will be taxed at lower rates – or not at all.  Every other New England state has already adopted this sound reform, known as “combined reporting.”  And it’s solidly pro-business:  it levels the playing field for small Connecticut businesses trying to compete with big corporations that use the loophole to cut their costs. 
  • Raising the sales tax on computer and data processing services from 1 percent to 3 percent.  That’s still less than half the state’s regular sales tax rate of 6.35 percent.  Every other state that taxes these services taxes them at the full sales tax rate.  Even with this modest increase, overall state and local business taxes in Connecticut likely will remain among the lowest in the country.  Connecticut’s state and local business taxes are tied for second lowest in the country as a share of the state economy, according to the Council of State Taxation, a business-friendly research group.
  • Raising income tax rates at the top.  Couples with incomes over $500,000 and singles with incomes over $250,000 will pay somewhat more.  That’s sensible given the alternatives, such as cutting support for public investments like education or raising taxes for middle- and low-income families.  Connecticut is the country’s wealthiest state but also among its most unequal, so investments that promote broader prosperity are particularly compelling.

State leaders have said they’ll revisit some of the proposals before taking final action.  But they had to make some hard choices to balance the budget, and the steps they took help protect Connecticut’s proud heritage of public investment and long history of economic success.