Saturday, February 27, 2016

Raise Taxes on Corporations and the Wealthy


By Reginald Johnson

  There’s a sorry spectacle going on right now in Connecticut, the wealthiest state in the nation.

   The state’s governor and some mayors are going around like paupers, hat in hand, saying they’re broke and can’t pay the bills.

  Gov. Dannel P. Malloy told the legislature that revenues are down this year, and as a result there needs to be $570 million cut in the state’s two-budget. Malloy is proposing to lay off 1,000 people from the state workforce, and has told agency heads to come up with ways to cut their budgets by over 5 percent.  The governor also said higher education has to be cut by $40 million.

   In the state’s largest city, Bridgeport, Mayor Joseph P. Ganim said the city is facing a $20 million budget deficit. Ganim is hinting that union contracts may have to be “restructured” --- meaning wages and benefits will have to slashed.

   Bridgeport schools --- which are funded with both city and state money --- are also facing a financial crisis. Schools Superintendent Fran Rabinowitz said the system has a $15 million budget deficit.

  You would think that in a state like Connecticut, you wouldn’t hear these cries of poverty. Connecticut has a lot of wealth.  The state is number one among all states in per capita income. It is ranked one of the highest in median household income. It is the home of many billionaires, some multi-billionaires.

  The state is home to many Fortune 500 corporations which enjoy substantial profits.

   All that personal and corporate wealth could be taxed a lot more, but it's not.

   Right now, corporations pay at a modest 9 percent rate on their income. Taxes from corporations account for just 4.6 percent of the state's revenue.

   For wealthy residents of the state, Connecticut's income tax is really not much of a worry. The top income tax rate for the state's highest earners is 6.7 percent.

A mansion in Southport. Connecticut has the highest per capita income in the nation.

  Politics has a lot to do with why the rich and big corporations aren’t taxed more. Large companies and the wealthy spread their money around for political candidates, and those who benefit are averse to raising taxes on their donors. The attitude is, don’t bite the hand that feeds you.

   Corporations and wealthy individuals also scare state officials by talking about leaving Connecticut if taxes are raised.

   Citing the decision by General Electric to pull its headquarters out of Fairfield and relocate to Boston --- a decision company officials said was driven in part by the lure of a better tax deal in Massachusetts --- Gov. Malloy said the state must avoid raising corporate taxes and keep Connecticut ‘business friendly.’

  It is true that in some cases big corporations and a few very wealthy people will leave Connecticut if their taxes go up. There’s no question that corporations around the country for years have played the game of “hopscotch” --- jumping from one state to another, or even leaving the U.S. altogether, to go where there’s a better tax deal, or where wages are lower.  Corporations hold states hostage with their threats to leave if taxes are raised.

  It’s going to take some changes on the federal level to start restricting the ability of corporations ---  those that are profitable and employ a lot of people --- to just up and leave a state and go somewhere else simply to make more money. What’s needed is a law that provides for a stiff financial penalty to be levied on a corporation that wants to leave. One idea is to pass a law which requires corporations to pay a 40 percent charge on profits to the states they're exiting.

   Such a penalty would make some corporations think twice about leaving, or if they still wanted to move, it would at least give the state they were leaving some compensation for the economic hardship the company was causing

  Unfortunately, that type of penalty is not in place yet. Hopefully, penalties or other restrictions on corporate activity will be put into effect as more and more people see the harm that corporations cause through relocations.

  But right now Connecticut has to deal with the cards it’s been dealt. Even though it’s a risk, I believe corporations should be made to pay more. Surely, it would not be that onerous that companies pay another 1 percent, boosting the corporate income tax rate to 10 percent.

  And wealthy individuals can certainly pay more than 6.7 percent on their state income tax bill. A 10 percent rate would be appropriate. A person making say $5 million in a year, and there’s plenty of those here, would pay $500,000 to the state. I think that person would still have a lot left over, even after paying federal taxes.

 The need to raise additional revenue from corporations and the wealthy is a moral issue as well as a practical one. Those who are able to pay more should pay more, simply because there’s less hardship for them to do so.

People waiting for food donations in Bridgeport. The city has high social service costs and a weak tax base.

  Ideas being tossed around now like raising the sales tax rate, bringing tolls back, or increasing various use taxes to close the budget deficit only penalize the middle class and poor --- those least able to pay.

   Another key step has to be taken to raise more money for government operations, particularly on the local level. Tax exemptions have to be ended for private universities or colleges that are financially well-off.  The tax exempt status for churches and houses of worship also has to end.

   Cities like Bridgeport and New Haven are losing huge amounts of money due to tax exemptions. Yale University in New Haven, which is very well endowed, is a prime example of a tax exempt institution that is getting nearly a free ride in terms of paying for both local and state services.

   Yale has an endowment of $25.6 billion. The college also has.$2.5 billion worth of properties throughout New Haven, according to city officials. But the university doesn’t pay a dime in local property tax.

  While Yale does make voluntary payments to the city for police and fire services, that amount is far less than what they would pay in property taxes if the college was not tax exempt. (Educational institutions are tax exempt under state law).

  All in all, Connecticut has the potential to garner a lot more revenue to fund needed government operations. The political will has to be summoned to make the needed legal changes to do this.

  The mantra you hear from leaders like Gov. Malloy that somehow a well-off state like Connecticut "can't afford" to pay for higher ed and needed social services is completely wrong.

  People should not stand for it.








No comments:

Post a Comment