A Message to Businesses Leaving CT

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A Message to Businesses Leaving CT

Whether you’re part of the mass CT commerce exodus or you’re aligned with the droves of stay-behind businesses and pissed off Nutmeggers left in their wake, my guess is you’ve got an opinion on this one.

Here’s mine: Good. Go.

C’mon, we lost GE and a bunch of mid-markets. We almost lost Aetna (shout out to CVS for the save). How is this a good thing?

It’s not. Corporations uprooting headquarters and heading to another state reduces jobs, negatively impacts Connecticut’s economics, inspires talent to relocate, and hurts the abandoned area’s commerce.

Then why are you OK with them leaving?

Two reasons.

First, Tariq Farid, founder of Edible Arrangements – the latest CT company to announce its plans to leave the state – and a past mentor of mine — once told me that change requires discomfort.

CT is one of the most tax heavy states in the union. We’re 2nd in combined income and sales tax burden behind only New York[1], despite year over year population decline and a stagnant real estate market. Now the state’s highest-paying taxpayers are leaving (’15-’16 saw a 45% decline in tax revenue from the Top 100), helping to create a $2.5B deficit.

Are we uncomfortable yet?

Here’s how I think of it: Imagine you and three friends are at Buffalo Wild Wings watching your beloved NY Giants continue their descent towards NFL mediocrity. One buddy slams down his Coors Light after the fourth Eli Manning sack-fumble and storms out. Another friend can’t stand Eli’s sideline face and exits right behind him. The third changes tables to get a better view of the UConn Women’s basketball game. The problem is, you just ordered 100 wings and 2 pitchers. The waiter, let’s call him Shmannel Shmalloy, could cancel a pitcher and knock a few bucks off the wings to encourage you to stay and your third friend to come back. Instead, he cites restaurant policy and you book it out the door as soon as he rounds the bar. Ultimately, your check ends up on another table, and some unsuspecting Yard Goats fans are now footing your bill.

Welcome to Connecticut.

Sounds like the restaurant State and some subjectively unreasonable policies are to blame.

Maybe.

Or maybe its Eli Manning’s fault. Or maybe it’s because those lady Huskies are a better draw than the Giants. But if the Giants improve their offensive line and Buffalo Wild Wings runs sympathetic spot promotions for anyone brave enough to wear a Manning jersey, maybe you’ll all have a better time next Sunday.

Your analogy went off the rails, Drew.

The point is: I am ok with companies leaving CT because if this happens enough, something will have to give.

Or, in the case of our B-Dubs analogy: the restaurant will lose more patrons, the Giants will sink even further, and Eli Manning will continue to frustrate us all. Oh, and the waiter will end up getting fired. All of which may actually facilitate change.

OK, there’s enough blame to go around, but you can’t just hit the hard-reset to “fix” some of these macroeconomic issues.

Why not? Connecticut has the 2nd highest median household income by state[2], ranks 4th in education[3], 6th in public safety[4], houses one of the top universities[5] and hospitals[6] in the country, all while boasting commutable distances to New York City and Boston.

We’ve also got the beauty of all four seasons without the tornadoes of the mid-west, hurricanes of the south, earthquakes of the far coast, or the blizzards of upstate NY. (Relax, we only rank 15th in snowfall by state[7]).

Why doesn’t everyone want to live and work here?

Maybe because it costs a fortune?

Does it, though? Despite the upper echelon rankings above, Connecticut’s aggregate cost of living currently comes in at 9th, behind Maryland and Oregon[8]. USA Today says CT has the highest personal income when adjusted for cost of living[9], driven in large part by our modest #10 ranking in median home prices. Our State and Local Sales Tax Rates rank a *meh* 12th.[10]

So how can a state with the greatest adjusted personal income and only the 10th highest housing market seem so expensive?

Tax burden and a weird economic divide, my friends.

CT ranks in the Top 5 in Effective Real Estate Tax Rate[11] and Vehicle Tax Rate[12], but mix in that pesky State Income Tax and that’s how we get to #2 in total tax burden. You can make a decent living in Connecticut, but you’re going to carry the load to support the State’s affairs.

Now, Personal Income Tax is complex and I’m no expert, but a few things stand out:

  • A Single-filer making $10,000-$50,000 pays the same or higher tax rate in CT than someone who makes $150,000 in 17 other states.
  • A Single-filer making $500,000+ per year pays about the same or lower rate than someone making $50,000 in 11 states.
  • The tax rate for someone making say $1,000,000 in CT is less than 2% more than someone bringing in $10,000.

I’m guessing someone can play with that math.

That does seem heavy. What did you mean by “weird economic divide?”

In my early 20s I lived on the same street as former Senator Joe Lieberman… and two housing projects.

Connecticut is so small that a 25-minute drive from Darien to Bridgeport is the difference between $1.3m and $173k in average home value. I think that’s why the State decided to just make it easy and tax the hell out of everyone — especially, those in “middle class” towns like West Hartford, Norwalk, Glastonbury and Milford (not exactly Bridgeport, but also not Darien), which are in the Top 10 for Total State Income Tax Paid.[13]

Here, “middle class” can mean an entry level recent grad OR a VP at GE (who probably pays hefty car and house taxes, too). If a scurrying talent pool is one reason companies are leaving, our lazy tax codes aren’t helping. Ultra-rich billionaires like Paul Tudor Jones and Edward Lampert were bound to pack their bags for Florida eventually, anyway. So, a heavy tax income reliance on a handful of Daddy Warbucks types and the entire middle class is a losing proposition.

Maybe if enough GEs flee CT, *someone*, *somewhere*, will fix our tax income-to-deficit problem.

Wishful thinking. What the second reason you don’t care if corporations leave CT?

Two words: Small business.

While big-corporate fat cats are jumping ship, small business is thriving in “Newyorkachusetts.”

The last CSB Survey (2016)[14] showed 87% of small business owners in Connecticut expect to hold steady or grow the following year. And while the middle class gets pounded by taxes, if you’re ambitious enough to start your own business, the State does offer a bevy of small business tax incentives.[15]

Consider this: small business makes up 97% of all business in Connecticut and employs about half its private workforce[16]. Yet in that same CSB Survey, small business owners cited CT’s Personal Income Tax as the #1 drawback to doing business in the state.

WOW. Can you imagine if the tax codes were actually favorable to start, manage, and grow more small businesses here in CT?

I can. It’s a beautiful world. A world with more jobs, no deficit, and no GE necessary. And maybe another Giants Super Bowl win… OR maybe a world where Connecticut actually has, you know, its own professional sports team — that’d give us all another reason to stick around.

[1] https://turbotax.intuit.com/tax-tips/fun-facts/states-with-the-highest-and-lowest-taxes/L6HPAVqSF

[2] https://en.wikipedia.org/wiki/List_of_U.S._states_by_income

[3] https://www.usatoday.com/story/money/economy/2018/02/08/geographic-disparity-states-best-and-worst-schools/1079181001/

[4] https://www.usnews.com/news/best-states/rankings/crime-and-corrections/public-safety

[5] https://www.usnews.com/best-colleges/yale-university-1426

[6] https://www.ynhh.org/news/us-news-and-world-report-once-again-recognizes-ynhh.aspx

[7] https://thetoolboss.com/average-snowfall-us-states/#tab-con-7

[8] https://www.missourieconomy.org/indicators/cost_of_living/

[9] https://www.usatoday.com/story/money/economy/2018/05/10/cost-of-living-value-of-dollar-in-every-state/34567549/

[10] https://taxfoundation.org/state-and-local-sales-tax-rates-2018/

[11] https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/

[12] https://wallethub.com/edu/states-with-the-highest-and-lowest-property-taxes/11585/#vehicle

[13] https://patch.com/connecticut/darien/here-who-pays-most-income-tax-ct-results-may-surprise

[14] https://www.cbia.com/resources/small-business/small-business-reports/2016-survey-of-connecticut-small-businesses/

[15] https://www.ct.gov/ecd/cwp/view.asp?q=462618&ecdNav=

[16] https://www.sba.gov/sites/default/files/advocacy/Connecticut.pdf


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