March 2, 2018

Commission's tax, economic policy changes raise small biz concerns

State Capitol in Hartford.

A national association that represents small businesses in Connecticut is urging caution on some recommendations issued Thursday by a CEO-led, state-sanctioned commission that call for major changes to state tax, economic and fiscal policies.

The 14-member Commission on Fiscal Stability and Economic Growth issued a list of proposals that includes a state tax overhaul, union bargaining changes, eliminating the estate and gift tax, a minimum wage hike, and paving the way for electronic road tolls.

The National Federation of Independent Business issued a statement Thursday saying it appreciated the commission's work and liked many of the recommendations, but not all of them.

For example, the group said it's opposed to raising the state's minimum wage to $15 an hour, which the commission recommended the state do gradually by 2022.

"The Commission acknowledged that some of their recommendations might be met with criticism, and certainly one such proposal is their endorsement of a plan for a $15 minimum wage, which will harm certain small businesses, their employees, and the state economy," said Andrew Markowski, state director of NFIB CT. "There are too many small businesses operating on a slim profit margin that simply can't afford that proposal."

Markowski said he also wanted more details on how the proposed tax changes would impact small businesses. The commission recommended a reduction in all personal income tax brackets (from 6.99 percent to 5.75 percent for the highest earners and by the same amount or more in most lower brackets); increasing the sales tax from 6.35 percent to 7.25 percent; boosting the payroll tax for larger companies; and reducing the dollar value of tax exemptions and deductions the state provides by 14 percent.

"We just want to be sure that small businesses aren't hurt more than larger firms under a tax rebalancing plan," Markowski said. "If reductions in personal income tax don't make up for the cost of a new payroll tax, it's a great concern. Higher sales taxes will also raise the cost of goods and services for small businesses, and the possibility of additional local option sales taxes could result in a patchwork of varying rates and administrative burdens."

Markowski did herald some other changes including chipping away at some state employees' collective bargaining rights and basing state spending on the amount of revenue on hand. NFIB also likes a proposal to eliminate the business entity tax.

The commission's report says Connecticut has a shrinking economy and is losing competitive ground to other states.

Its co-chairs, former Webster Bank CEO James Smith and former Women's Health USA CEO Robert Patricelli, penned an opening message to lawmakers urging immediate action on the commission's recommendations, though a full implementation would take several years.

The state is in a "quiet crisis by every measure," the report says. It has regular budget deficits, growing unfunded liabilities, weakened bond ratings and economic growth, and higher outmigration.

The commission has been working on a tight timeline. It was created by lawmakers in late October and convened for the first time in mid-December.

Language in last year's budget that created the commission requires three legislative committees to hold public hearings on the recommendations by the end of March. In addition, at least one of those committees must report out a bill with the report's recommendations and the legislature must hold a vote. (There may be one hiccup: The Office of Fiscal Analysis says it's unclear whether that provision will be enforceable.)

Political reaction

Organized labor wasn't impressed with the commission's recommendations, calling them a boon to big business and the wealthy.

"The recommendations were supposed to be about creating fiscal stability and strong economic growth, but are nothing short of a full frontal attack on working people in the state," said Lori J. Pelletier, president of the Connecticut AFL-CIO. "While there are some positive recommendations -- such as increasing the minimum wage and lowering the tax rates for the middle class and working poor -- the overall recommendations are a gift to the state's ultra-wealthy and seek to diminish the wages and benefits of Connecticut's workers."

Meantime, Gov. Dannel P. Malloy, who was instrumental in backing the commission's formation said, "The Commission on Fiscal Stability and Economic Growth undertook an enormous task to conduct an exhaustive analysis of the state's fiscal situation and to propose a comprehensive package of recommendations to be deliberated and voted upon by the General Assembly this session. It is clear that members of the commission took their charge seriously and put a great deal of thought and effort into the development of this proposal. The fact is, this commission's report presents Connecticut with an opportune moment to engage in a meaningful conversation about bold ideas for growing our economy and building stronger communities where people want to live and work – now and into the future."

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