Connecticut's tax greed may cost it dearly

Connecticut seems determined to follow the Illinois path into a death spiral of higher taxes driving out business, leading to less revenue and the need to raise taxes on the remaining businesses unable to flee.  The Democrat governor and legislature, who ran in 2014 on a promise of no new taxes, have just introduced a large tax increase, including a suicidal attempt to drive corporate headquarters out of the state.  The Wall Street Journal’s Review and Outlook column explains:

The blue-state paragon’s two-year budget of $40.3 billion includes a $1.5 billion net increase in taxes and fees. The top marginal individual tax rate rises to 6.99% from 6.7%. But the biggest blow is making permanent a 20% surtax on a company’s annual tax liability—a tax on a tax—and for the first time taxing Connecticut companies on their world-wide income, rather than what they earn in the state.

General Electric , long a Connecticut fixture, protested that the state is “retroactively raising taxes again,” which “makes businesses, including our own, and citizens seriously consider whether it makes any sense to continue to be located in this state.” Aetna , the giant health insurer and pillar of Hartford, said the bill would “undermine the competitiveness” of companies and “lead to an exodus of jobs and business from the state.’’

The biggest shock came Thursday when GE CEO Jeffrey Immelt told the company’s Connecticut employees that he has “assembled an exploratory team to look into the company’s options to relocate corporate HQ to another state with a more pro-business environment.”

Taxing the worldwide earnings of a company foolish enough to keep its headquarters in a state is an invitation for highly paid jobs to migrate to Texas or another state that sees wealth-generation as a better path than wealth-confiscation.  As it happens, General Electric has a very small corporate headquarters staff for a global behemoth – a practice that keeps the company lean, with decision-making taking place at lower levels more in touch with the realities of the business.  But those headquarters jobs tend to pay salaries that pour a lot of revenue into the Nutmeg State’s income tax account.  Jack Welch moved GE’s headquarters from New York City to Fairfield, CT in part to escape burdensome New York taxation, back when Connecticut was a tax haven for New Yorkers.  The same goes for the many hedge fund and other financial operators located in Greenwich.  Those high-paying jobs are very mobile and could easily be handled out of Florida, Texas, or many other places.

The state’s insurance industry is another matter, with thousands and thousands of jobs at stake.  Moving those jobs elsewhere is a longer and more complex process, but the headquarters function can be picked up relatively easily.  Once gone, the other jobs most likely would slowly leak out, for Hartford and environs are not a cheap place to operate.

Review and Outlook suggests that a GE move out of state would be a good object lesson.

Congratulations to Mr. Immelt and Aetna for speaking out. The best way they could help the people of Connecticut now would be to leave the state, which might finally shake the public enough to stop electing politicians who think they can fleece the private economy without consequence.

Perhaps.  But I am not optimistic on that count.  The current fashion in Democrat politics is to castigate the energetic and successful for earning more than the layabouts.  In any event, the commercial real estate professionals in Dallas, Houston, and various other low-tax environs are already putting together attractive packages for perusal in Fairfield, Hartford, Greenwich, and other Connecticut office parks.

Connecticut seems determined to follow the Illinois path into a death spiral of higher taxes driving out business, leading to less revenue and the need to raise taxes on the remaining businesses unable to flee.  The Democrat governor and legislature, who ran in 2014 on a promise of no new taxes, have just introduced a large tax increase, including a suicidal attempt to drive corporate headquarters out of the state.  The Wall Street Journal’s Review and Outlook column explains:

The blue-state paragon’s two-year budget of $40.3 billion includes a $1.5 billion net increase in taxes and fees. The top marginal individual tax rate rises to 6.99% from 6.7%. But the biggest blow is making permanent a 20% surtax on a company’s annual tax liability—a tax on a tax—and for the first time taxing Connecticut companies on their world-wide income, rather than what they earn in the state.

General Electric , long a Connecticut fixture, protested that the state is “retroactively raising taxes again,” which “makes businesses, including our own, and citizens seriously consider whether it makes any sense to continue to be located in this state.” Aetna , the giant health insurer and pillar of Hartford, said the bill would “undermine the competitiveness” of companies and “lead to an exodus of jobs and business from the state.’’

The biggest shock came Thursday when GE CEO Jeffrey Immelt told the company’s Connecticut employees that he has “assembled an exploratory team to look into the company’s options to relocate corporate HQ to another state with a more pro-business environment.”

Taxing the worldwide earnings of a company foolish enough to keep its headquarters in a state is an invitation for highly paid jobs to migrate to Texas or another state that sees wealth-generation as a better path than wealth-confiscation.  As it happens, General Electric has a very small corporate headquarters staff for a global behemoth – a practice that keeps the company lean, with decision-making taking place at lower levels more in touch with the realities of the business.  But those headquarters jobs tend to pay salaries that pour a lot of revenue into the Nutmeg State’s income tax account.  Jack Welch moved GE’s headquarters from New York City to Fairfield, CT in part to escape burdensome New York taxation, back when Connecticut was a tax haven for New Yorkers.  The same goes for the many hedge fund and other financial operators located in Greenwich.  Those high-paying jobs are very mobile and could easily be handled out of Florida, Texas, or many other places.

The state’s insurance industry is another matter, with thousands and thousands of jobs at stake.  Moving those jobs elsewhere is a longer and more complex process, but the headquarters function can be picked up relatively easily.  Once gone, the other jobs most likely would slowly leak out, for Hartford and environs are not a cheap place to operate.

Review and Outlook suggests that a GE move out of state would be a good object lesson.

Congratulations to Mr. Immelt and Aetna for speaking out. The best way they could help the people of Connecticut now would be to leave the state, which might finally shake the public enough to stop electing politicians who think they can fleece the private economy without consequence.

Perhaps.  But I am not optimistic on that count.  The current fashion in Democrat politics is to castigate the energetic and successful for earning more than the layabouts.  In any event, the commercial real estate professionals in Dallas, Houston, and various other low-tax environs are already putting together attractive packages for perusal in Fairfield, Hartford, Greenwich, and other Connecticut office parks.