All of this talk about people leaving Connecticut to move to cheaper places to live has me thinking about the national conversation on corporate inversions.
When Burger King announced it was moving to Canada (a wonderful country which also happens to be my birthplace), to take advantage of a lower tax rate, there should have been a collective pause so we could all say, ‘Really, Canada has a lower corporate tax rate than America?”
Yes, as it turns out, Canada has a lower corporate tax rate than America, as does most of the rest of the world. The United States is also one of the only countries that forces its companies to pay taxes on profits earned abroad.
Our national leaders have responded to corporate relocations with accusations that the people who run them are unpatriotic tax-dodgers. Bills have been introduced to try to force corporations to keep their headquarters here by “closing tax loopholes.”
But, as John Samuels, General Electric’s vice president of tax policy and planning, said earlier this week, “I don’t think any anti-inversion activity can be effective in a global economy where capital is mobile.”
Yes, capital is mobile. That is true for the global economy, and it is true at the state level as well. Corporations — or individuals — can gather their capital and move it across state lines, whether to New Hampshire or North Carolina, or Florida.
And while there are probably state officials who’d love to tax people or companies that leave Connecticut to set up shop where taxes are lower, that (thankfully) isn’t possible either.
The discouragement is real, which we saw at the Yankee Institute earlier this year after we sent out a mailing to our supporters with information about some recent public policy work, outlining ways we think Connecticut can prosper again. We received several unsolicited responses from people who told us they’d given up on the state.
“I left! Good luck, but I think it’s a lost battle!” said one. “Connecticut is lost! I do not plan on going down with the Titanic!” said another.
While I’m sympathetic to those who feel discouraged, I don’t think Connecticut is lost. Not yet, anyway. We don’t have to be Detroit 2.0.
But the people who respond to the collective malaise by saying, ‘If you don’t like it, get out,’ aren’t being helpful. I heard that same sentiment expressed in red states, but in those states it was said to environmentalists and liberal activists. It wasn’t nice there, and it isn’t nice here.
That response also ignores the real pain many state residents feel because of our sluggish economy. Like the pain felt by those dealing with long-term unemployment, or the stress felt by retirees who are forced out of their homes because of rising property taxes, or the disappointment of young families who struggle to afford to even buy a house.
There are some people who get it — who want to make changes so Connecticut can be a more affordable place to live.
At a press conference earlier this week, Tim Herbst, the Republican candidate for state treasurer, who is facing long-time incumbent Denise Nappier, spoke about how he would act as a “firewall” in state government to protect residents from more debt and runaway spending that is often put on the state credit card.
He also said he would refuse to take part in the state’s defined benefit pension plan, and would instead elect to take a defined contribution, 401(k)-style, plan.
Nappier, who was first elected as state treasurer in 1998, oversees the state’s pension funds, which are not in good shape.
Connecticut has the second-highest pension debt in the nation, as ranked by Moody’s Investors Services. The Yankee Institute calculates that the debt is $76 billion, with another $24 billion in debt for the healthcare and life insurance plans owed to state employees. The state pegs its pension debt at around $24.5 billion, and doesn’t assess money owed for other benefits in its accounting.
Yankee’s numbers are based on a lower discount rate than the state’s — basically, the economists who did the study calculated the debt assuming a 5 percent return on investments, while the state assumes a robust 8.5 percent. It’s great to be optimistic, but when dealing with tax dollars, and with the money saved for benefits that were promised to state employees, it is better to be safe.
One bad downturn can wipe out years of good earnings, as we’ve seen in the years since the 2008 recession. We don’t want the state to be in a position where we won’t be able to pay for promised benefits if another crisis hits.
Any way you look at it, our pension fund is in trouble, and the small changes made by Gov. Dannel P. Malloy in 2011 didn’t make much of a difference. And, getting back to our inversion problem, businesses notice — a state’s long-term fiscal health is part of the assessment businesses make when looking at whether or not to invest more capital, and create more jobs, in a state.
It seems cold to people, these calculations businesses and individuals make about when to stay and when to go. But, in all likelihood, Burger King did not want to move to Canada — as lovely as it may be.
And in all likelihood, many of the people who have left Connecticut in recent years didn’t want to go either. Those of us still here shouldn’t be encouraging the discouraged to get out, instead we should ask ourselves how to make Connecticut a vibrant, prosperous state again so our friends and neighbors can stay put.
Suzanne Bates is the policy director for the Yankee Institute for Public Policy. She lives in South Windsor with her family. Follow her on Twitter @suzebates.
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