Dark clouds in Connecticut's silver lining
The state’s economic news Thursday was mindful of a sunny day, but with a forecast of possible storms to come. But unlike the weather, Gov. Dannel P. Malloy and his fellow Democrats in control of the legislature have the opportunity to try to avert the potential storms and help the sun shine brighter.
The sunny news was a drop in Connecticut’s unemployment rate to 5.4 percent, down from a revised June rate of 5.7 percent. Connecticut gained 4,100 jobs. If the state economy keeps up that rate, a month from now the private sector will have fully recovered all the jobs lost during the Great Recession and its aftermath. It is already 97 percent of the way back and the unemployment rate is the lowest since May 2008.
Connecticut is no longer trailing the country, its 5.4 percent unemployment rate considered statistically indistinguishable from the 5.3 percent national rate.
Gov. Malloy certainly deserves some of the credit for this. His aggressive incentive programs to keep and expand some major corporations in the state, boost the bioscience and technology sector, and provide grants and loans under the Small Business Express Program to help small businesses weather the repercussions of the recession all played a positive factor.
However, in refusing to consider cutbacks in state labor costs, and once again embracing big tax increases to allow the budget to grow, Gov. Malloy and the Democratic majority have placed the gains at risk — accounting for the potential economic storms to come.
That is illustrated by what appears to be serious overtures by General Electric to relocate its headquarters, a mainstay in Connecticut since the 1970s, to another state.
The Connecticut Post reports that a bidding war has broken out to reel in GE, now located in Fairfield. The company has 4,900 jobs in Connecticut, many of them the well-paying variety. Considering vendor services to the company and the ripple effect of those jobs, its impact on the state economy is certainly considerable.
Recall that GE, joined by Aetna, warned that it could leave the state after the General Assembly approved a $40 billion two-year spending plan that raised taxes nearly $1.4 billion. The legislature, warned the business sector, was both adding to the cost of doing business and creating uncertainty by constantly finding new ways of imposing taxes.
Among the items generating the greatest concern was implementing a so-called unitary reporting requirement, retroactive to Jan. 1, which would force multinational companies like GE to open their books to Connecticut and pay taxes based on business activity tied to the state, even if it may not take place here.
Faced with the corporate insurrection, Gov. Malloy brokered a deal that pushes implementation of the tax back one year.
Gov. Malloy should acknowledge that the new tax is a mistake and commit himself to working with the legislature to eliminate it before it begins, then find other ways of balancing the state’s budget.
One could make the argument the planned unitary reporting requirement tax is fair. Many other states utilize it. Corporations are adroit at using their multistate and multinational standing to protect profit from taxation.
But fair may well be beside the point. Connecticut is already an expensive place to operate. Not utilizing a unitary reporting requirement has been one of its few competitive advantages, particularly when it comes to landing corporate headquarters interested in being close to New York City.
“We have formed an exploratory team to assess the company’s options to relocate corporate headquarters,” GE said in a statement Tuesday.
It’s possible that GE could have made this move in any event. It could seek to gain other concessions from the Malloy administration. There is something detestable in watching states compete with promises of tax breaks and other incentives to attract highly profitable corporations such as GE.
However, that’s the reality facing the Malloy administration and the recently passed tax package sent the wrong message.
The Day editorial board meets regularly with political, business and community leaders and convenes weekly to formulate editorial viewpoints. It is composed of President and Publisher Tim Dwyer, Editorial Page Editor Paul Choiniere, Managing Editor Izaskun E. Larrañeta, staff writer Erica Moser and retired deputy managing editor Lisa McGinley. However, only the publisher and editorial page editor are responsible for developing the editorial opinions. The board operates independently from the Day newsroom.
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