Sunday, April 18, 2010

Lamont’s Democratic Calculus

Ned Lamont, styled an “entrepreneur from Greenwich” by one reporter, showed up at City Fare Catering on Franklin Avenue in Hartford in mid April, with a plan. (As a side note, may one mention that Republican “entrepreneurs” from Greenwich are usually called “millionaires?”) Lamont, the entrepreneur, is running for governor as a Democrat.

Lamont’s plan is to eliminate the business entity tax in Connecticut, a proposal that could well be seconded by Gov. Jodi Rell, other Republicans and some blue dog Democrats interested in getting re-elected next term. Connecticut is bleeding jobs, and businesses are looking to the legislature for a lifeline. Even a sign of a lifeline, even a symbolic life line, might do must to restore flagging spirits.

The business entity tax is a $250 annual fee paid by thousands of small companies in the state. Not unlike other Connecticut businesses, City Fare Catering has been hit by a precipitous drop in business owing to the current malingering recession.

A small business owner and entrepreneur, Lamont said that axing the tax could help small businesses revive:

“If we could give people an incentive to hire just one or two more people, we would be able to get this economy growing again. Right here at City Fare, they used to have 32 folks. Now, they're down to four. Elimination of the business entity tax is one way that we can tell people: Start growing, start hiring people. It's a nuisance tax. ... This would send a message. Let's eliminate that tax and get growing again.”
The drop in employment from 32 to 4 is a remarkable statistic. Let us assume that the employees at City Fare receive minimum wage, $8.25 per hour in Connecticut. A week’s wage for one employee at that scale would be $330.00 net; and of course the state legislature and the national legislature would take a man-size bite out of the total. The elimination of the business entities tax, rightly characterized by Lamont as a nuisance tax, would save City Fare $250 per year about $4.81 per week, which the company then could use to hire .014 of an employee – far less than Lamont’s “one or two people” and not a spurring incentive.

However, eliminating the tax just might send a message to entrepreneurial investors that Connecticut at long last is serious about adjusting its spending ways and taxing habits. Rather than cuts, the state usually proposes self lapsing credits to make itself look attractive to business lobbies, rating services and entrepreneurs like Lamont, both in and out of state,.

However again, in true Democratic fashion, Lamont proposes to replace the tax cut with yet another tax increase. In legislative lingo, this is called “paying for the cut.” In plush times, when the state treasury was bursting with surpluses, some wayward Republicans occasionally and impertinently demanded tax cuts; nearly always, such public nuisances were asked gruffly, “How do you propose to pay for the cuts?” Tax cuts, it was asserted, must be paid for by adjustments elsewhere in the revenue stream -- even when the state was awash in surpluses.

Lamont proposed to pay for his tax cut by instituting a “combined reporting tax.”

Not a good idea, retorted the Connecticut Business and Industry Association, a group sometimes on the alert for ideas and legislative measures that might injure the state’s present and future entrepreneurs.

The new tax reporting method -- which would combine a company’s operations in and out of state into a single tax report – would affect large companies headquartered in Connecticut such as Hartford-based United Technologies Corp. or Fairfield-based General Electric, inducing such companies to move their headquarters to states and localities that do not rely on a combined reporting tax to pay for spending that may become even more extravagant as the money from Lamont’s new reporting method fills Connecticut’s treasury.

The objection to Lamont’s new tax generating reporting change seems reasonable. Why would a company in Connecticut or one considering a possible move into the state’s tax briar patch not prefer a local in which companies pay the lower nuisances tax?

Lamont, perhaps still under the influence of his illustrious great uncle Corliss Lamont, characterized this objection as “a red herring.”

It only remains for Lamont’s political opponents to characterize his minimal attempt to reduce business taxes as a “Potemkin Village.”
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