PS. On an unrelated note, June 4 is the anniversary of the famous naval battle of Midway that was one of the turning points of WW II. I posted on it last year, the seventieth anniversary. If you missed it here is a link.
Thursday, June 4, 2015
Kill the Goose
On April 17 I put up a post entitled "Minimum Wage Madness" that claimed that an attempt to penalize large corporations in Connecticut which did not increase their minimum wage to $15 an hour might drive some large employers like General Electric out of Connecticut. Sure enough, headlines this week in the local newspaper, "The Connecticut Post," indicated that GE and others had warned legislators who were considering a huge increase in corporate taxes, as well as the minimum wage increase, that they might actually leave.
GE was joined by huge insurance companies headquartered in Hartford, the State’s Capitol once known as the Insurance Capitol of the country. The minimum wage proposal seems to have been put aside but in a last minute rush to deal with a huge budget shortfall, the Democrat majority in the legislature decided to go ahead and create a levy on corporations domiciled in Connecticut by about $62 million.
Inevitably, such soak the rich schemes are popular but there is a risk that people will find that they have killed the proverbial goose that laid the golden egg. One legislator claimed that GE paid no Federal or State taxes, and argued that it was only fair to make the fat cats pay.
Putting aside for the moment whether GE as a corporation pays Federal or State taxes, can anyone be so dense as not to realize the enormous amount of tax revenues that GE and other large corporations generate. GE has almost 6000 employees in Connecticut alone. All of these employees from the CEO on down pay Federal and State income taxes. All of them pay sales tax on most of what they purchase in the state. All of them pay personal property tax on their automobiles and other possessions. All of them pay real estate taxes based on the value of their homes. These real estate taxes pay for the salaries and benefit packages of local police officers, firefighters, and teachers.
The corporate headquarters of GE is in the town of Fairfield, and GE is the largest taxpayer in the town. It would be a disaster for the town if this good neighbor were to leave the state. If GE left, a huge gap in the tax rolls would have to be filled. Homeowners, rich and poor, would see an increase in their real estate taxes. Even rentals would go up as landlords factor increased property taxes into rents.
Why in this country have we come to consider corporate profits as a bad thing? Why would most college graduates today prefer to work for a non-profit entity? What is wrong with making a profit, especially when it is these profits that pay for most of the things we value.
If GE leaves Connecticut, there will be no profits to tax. If GE left the State, the results would be disastrous not so much for GE stockholders, executives and other fat cats, but mainly for the thousands of ordinary people whose incomes are dependent on GE. In his two terms Governor Malloy has not been able to attract new business to Connecticut unless he doles out huge tax subsidies and credits. Why are he and the legislature creating a huge disincentive for companies currently domiciled here to leave?
The Governor and the Democrat leadership in the legislature that waited, as always, to the last minute to patch together this so-called budget should be prepared to take the blame if their strategies backfire. At the start of his first term the Governor pushed through a huge tax increase that was supposed to solve the State’s fiscal woes. In his recent campaign he pledged no new taxes but then left it to the legislature to create a number of new ones.
Congratulations to Fairfield representative Kristin McCarthy Vahey, a Democrat from Fairfield who voted against this budget. It will be interesting to see how the party leadership treats her in the future.