An annual study out last week showed Connecticut businesses pay low taxes.
True.
If Connecticut only taxed businesses – and not people – it would have one of the lowest tax burdens in the country.
However, Connecticut taxes everything people buy, earn and own, which is to say, everything.
And at a pretty high rate, too.
When all taxes – on businesses and people – are taken into account, Connecticut has one of the highest tax burdens.
Connecticut businesses pay about 3.6 percent of the state economy in taxes. The most recent data for total tax burden – pre-dating the largest tax increase in state history – shows total taxes amounting to 12.3 percent of the state economy.
Is it good that Connecticut’s business taxes are low? Yes. Business taxes are inefficient because businesses don’t pay taxes, people pay taxes.
When Connecticut taxes a company its customers, owners and employees split the cost (although not necessarily evenly).
It is good that Connecticut’s business taxes are low, but it is bad that we compensate with high taxes on people.
Although businesses don’t pay taxes there is a relationship between taxes on people and costs to business. If taxes on people are high (as they are in Connecticut) people need to earn more to have the same after-tax income. That means businesses need to pay Connecticut workers more because of the high taxes on those workers.
The study, by Ernst & Young for the Council on State Taxation, also found Connecticut had one of the largest increases in business taxes last year, 10.3 percent, which makes this victory lap by Gov. Dannel Malloy’s spokesman odd.
“The governor has been clear that he’s out there every day competing for jobs, and what this report shows us is that Connecticut is an extremely competitive place to do business,” Andrew Doba told the Connecticut Mirror. “That’s part of the reason why we’re adding jobs at a faster clip right now than at any other point since the recession began.”