The Price of Profits

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Not surprisingly, there has been a lot of doomsday prophecies regarding Connecticut’s taxpayers and large corporations fleeing the state for more business friendly, low-tax states. The data reveals that when a state imposes higher taxes than a neighboring state, residents and businesses will cross the border to some extent and therefore, tax competition between states becomes an unpleasant reality.     However, what the data also reveals is that Connecticut ranks 40th out of 50 for the number of people leaving the state. Although this statistic has challenging consequences and is certainly important, when we take a closer look at the reasons expressed from those leaving the state or expressing a desire to leave, we get a very different perspective. The biggest factor, as reported by a Gallup poll and others that residents give for planning to move out of Connecticut is 21% for work or business reasons. This is followed by family or other social reasons at 13%, weather or location 7%, and then seeking a better quality of life or change at 12%, school related reasons were 10%, cost of living 12% and taxes…..a whopping 6%. Which means the conservatives once again have it all wrong…. 82% of residents leaving the state are doing so for reasons other than taxes or cost of living. The list of top outbound states also includes about four conservative states, which further invalidates the over-simplified notion of Connecticut taxing residents and business to extinction.

Connecticut’s tax system has a long and complicated history. From the 1980’s when a dependence on the sales tax proved to be inadequate during recessions to our current reliance on income from wages. Unfortunately, income tax revenues are vulnerable to market volatility and for the last thirty-five years’ middle-class wages have stagnated. Predictably, since the 2008 recession, revenues from income, wages, casino revenues and investment returns remain below pre-recession levels and continue to contribute to the steady decline in state revenues. However, what’s particularly noteworthy when reviewing Connecticut’s budget is the realization that while municipalities continue to struggle, middle-class wealth and wages remain stagnate and rising property taxes persist, the one segment of Connecticut’s economy that continues to experience significant declines in tax liabilities are corporations. In 1993 they contributed 19% towards Connecticut’s general fund revenues, today that number is less than 9%. This is largely due to the tax competition corporations have managed to exploit between states. This tax avoidance strategy has reaped enormous gains for corporations, pits states against one another and increases the volatility in state budgets.

When examining state spending in Connecticut, nearly 80% of all general fund expenditures fall into four categories; personnel costs, which covers the salaries and benefits for state employees and amounts to 38% of spending or $6.6 billion dollars. Next is Municipal aid, this is state funding to cities and towns which largely funds education and alleviates local property taxes. This category totals 17.5% of spending or $3 billion dollars. Medicaid is health coverage for 700,000 poor or disabled residents and equates to 13% of spending or $2.3 billion. Debt service is essentially credit card debt at 10% or $1.8 billion dollars. The other 21.5% or $4.0 billion dollars of the budget funds everything else from higher education, social service programs, economic development, job training, environmental protection, transportation, social services, arts, tourism, etc. However, if our tax rates matched the rates in neighboring states such as New York, New Jersey and Massachusetts, Connecticut could generate over $300 million annually in additional revenue.

Nevertheless, there are nuances and complexities that are critical to gaining a thirty-thousand-foot perspective when comparing state taxation models. For instance; per-capita spending-measures the economic well-being of a state. Also critical is the level of federal contributions individual states receive and the regressive nature of various state taxation models. When we compare Connecticut with the national average for per capita spending- the amount individual states spend on their residents- the national average is about $6,400. Generally speaking, the lower the amount, the fewer the services like transportation, education, healthcare and assistance for children, elderly and special needs are available. Connecticut spends about $7,719.82 per capita. In comparison, , most “low-tax, business friendly states” spend far less on services in an attempt to compensate for inadequate revenue and to keep a balanced budget. For instance, Texas averages just about $4,905 per resident, near the bottom of all states with the highest rate of uninsured children in the nation. Texas public schools and mental health are also dismal in comparison to other states. In Florida, the revenue per capita is $4,400, the lowest of all fifty states, which explains why nearly 20% of Florida residents live in poverty, the highest of any other state. One in five Florida residents don’t have health insurance and the state also has the lowest rates of educational spending in the country. Furthermore, If we compare the amount of federal dollars that individual states collect from the federal government, again using Connecticut as an example, we find the Nutmeg state receives about 27% of their budget from the feds. Or an average of .77 cents for every dollar contributed to federal taxation. In contrast, low-tax-business friendly states like Tennessee or Mississippi receive about 40% of their budget from federal dollars.  In other words, for every dollar Mississippians contribute in federal taxes they receive $2.34 back from the federal government. South Carolina, like many conservative states, receives more than five dollars for every one dollar they contribute to federal taxation. Unfortunately, failed strategies that rely on low per-capita spending and federal assistance to balance state budgets is only exacerbated when a state also applies regressive taxation methods. For example, the most regressive tax states in the nation are; Washington, South Dakota, Tennessee, Mississippi and Nevada. Each of these states derives between 50-65% of their revenue from sales and excise taxes. In comparison, the national average of about 35%. Equitable states distribute their tax liabilities more evenly between sales, excise, property and income tax. Connecticut utilizes EITC for low-income residents and derives about 24% of its revenue from these types of taxes.

Of course, the irony is, that in spite of the fact conservatives condemn welfare and the redistribution of wealth—conservative states tend to be the largest recipients of federal tax dollars. Matter of fact, nine of the ten poorest counties in America are in conservative-led states. And of the thirty-two states who receive more money from the federal government than they contribute-twenty-eight are conservative led states. This data underscores the fact that, despite their rabid anti-government rhetoric, many so-called low-tax, business friendly states remain deeply dependent on the federal government and the higher-tax states like Connecticut, Alaska, New York, Delaware, Maryland, New Jersey, Wyoming, Massachusetts and others, to provide basically welfare assistance to subsidize their inadequate and regressive taxation policies. In other words, the living standards for low-tax, business friendly states are being artificially inflated with money redistributed from states with higher rates of taxation. This paradox arises from the notion peddled by corporations and the politicians in their thrall that corporate welfare, in the form of subsidies and low taxes, creates jobs and by extension increased tax revenue. However, what is actually occurring is that corporations are pitting states against one another in a competitive race to the bottom and states who subscribe to this notion are ultimately forced to slash spending on social programs and enact regressive taxation strategies that impact their most vulnerable citizens. The results speak for themselves these states experience much higher rates of poverty, teen pregnancy, abysmal healthcare, lower graduation rates, significantly lower income levels, higher infant mortality, much higher gun violence and incarceration rates. For the last thirty-five years, the Republican solution to this rampant corporate welfare program is to transfer the wealth and shift the responsibility of this dereliction from businesses to the people.

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