(Updated 10:10 a.m.) Gov. Dannel P. Malloy signed an executive order to create a nine member Business Tax Policy Review Task Force Thursday hours after a national expert on tax policy gave a speech on that very issue at the state Capitol and weeks after state Comptroller Kevin Lembo urged the legislature to reconvene a similar task force.
“This task force will make sure that Connecticut is getting a solid return on those investments by closely examining ways to reduce costs, improve efficiency, and ensure that taxpayer dollars are being used to create and retain good, permanent jobs for our workforce,” Malloy said in a statement.
For years Democratic lawmakers begged Republican governor’s to review the state’s $5 billion in tax exemptions and credits, but their calls to reform the revenue side of the budget fell on deaf ears.
Republicans maintain the state has a spending problem and feel that many of the tax exemptions on the books are for business to business transactions. They say eliminating some of them may hinder job growth in the state or simply increase the cost of doing business for certain companies.
Malloy, a Democrat, eliminated some of the sales tax exemptions for specific businesses, such as yoga studios and yarn retailers, in his first budget proposal. It’s likely more will be on the chopping block after the task force completes its works in October.
But this time instead of sales tax exemptions the new task force was asked to look specifically at business taxes.
According to an annual report by Ernst & Young Connecticut’s total business tax burden if you add up all state and local taxes was about $6.9 billion and the total effective tax rate, which measures the ratio of business taxes to private-sector gross state product, was 3.3 percent in 2010. The average total effective tax rate for all states was about 5 percent and in some states like Vermont was as high was 7 percent.
Malloy recognized that Connecticut’s business tax burden was the lowest in the nation in his executive order.
“While Connecticut’s total effective business tax burden is the lowest in the nation, we must continue to evaluate and improve the state’s business tax policy, which is vital to assuring a positive environment for business development and job growth,” Malloy wrote.
Malloy instructed the task force, which has yet to be appointed, to identify specific business tax areas, including business tax credits that should be the focus of future legislation and to evaluate the cost, benefit, and efficiency of the current business tax structure and credits.
The Business Tax Credit and Policy Review Committee that Lembo urged the legislature to reconvene will study and evaluate existing credits against the corporation business tax and make recommendations on changes or modifications necessary where tax policy “…is not providing a measurable benefit sufficient to justify any revenue loss to the state.”
Lembo pointed out last month that the legislature created this panel in 2005, but it was never convened.
“There are more than a half billion state tax expenditures on the books – and we need to confirm whether they’re working,” Lembo said Thursday. “With so many dollars at stake, particularly concerning job-creation initiatives, they must be monitored closely to ensure success.”
The committee will hold its first meeting 11 a.m., Jan. 30.
Meanwhile, Matthew Gardner, executive director of the Institute on Taxation & Economic Policy, told a group of policy advocates at the CT Voices for Children forum that getting corporate tax information these days is tough, but transparency is crucial toward reforming the tax code.
He said every year state’s and Congress are constructing special tax breaks for specific industries “with little public debate, and no guarantees the public will ever get anything in return for these tax breaks, and no oversight going forward to determine how these tax breaks are working.”
“This process thrives on a lack of transparency and the more we know about the way these deals are made the more likely it is that these deals will be made in a way that’s advantageous for the residents,” Gardner said.
Aside from transparency Gardner also touted sustainability.
“The most fundamental goal for corporate tax reform has to be sustainability,” Gardner said. “You need to have the corporate tax grow over the long run, one that keeps pace with the public investments it’s supposed to be paying for.”
Connecticut‘s corporation tax seems to be going in the wrong direction.
“The Connecticut corporate tax has shrunk dramatically over the last quarter of a century,” Gardner said. “We also know from a recent report by Ernst and Young… Connecticut business taxes are low and are in fact about as low that any state in the nation.”
He said the Connecticut corporate tax is no longer pulling its weight to fund the state’s basic investments. He said both the state and federal government are collecting about half the revenue they ought to be from big corporations.