Op-Ed: Company president outraged at Connecticut’s ‘fiscal incontinence’

Dear Gov. Dannel Malloy:

I am a resident of Redding Connecticut. I was born in Connecticut and have lived here most of my life. I am the president of Preferred Utilities Manufacturing Corporation which has been based out of Danbury since 1946 and currently employs almost 90 people.

I am writing this letter as a Connecticut employer who has kept his family business here despite the oppressive and stifling atmosphere including overwhelming taxes and regulations. Notwithstanding these grim realities, we have chosen to remain in Connecticut because we still believe in its potential to regain its former economic power and prosperity.

Op-ed submit bugI am outraged at Connecticut’s federal unemployment act tax on all employers because of the state government’s inability to manage its federal loan obligations, and coercion of state businesses who cannot vote for or against state policies. When residents of this state does not meet their loan obligations they lose their house or car, but when Connecticut doesn’t meet its obligations it can just put a gun to the head of businesses and taxpayers and tell them to pay up or go to jail.

This method of raising money is reminiscent of the “protection” money businesses in some parts of the country have to pay to organized crime so there isn’t an “accidental” fire at their place of business.

The standard Federal Unemployment Tax Act tax rate is 6 percent, less the 5.4 percent credit, or 0.6 percent on the first $7,000 of wages subject to FUTA. Because Connecticut has irresponsibly defaulted on its loan from Washington, Connecticut employers are taxed an additional 1.7 percent, or $119 per employee. State and Federal governments feel they are being sly by passing these hidden taxes on entities that cannot vote, but the reality is that they are killing jobs at home and shipping them to places that exercise some degree of fiscal responsibility.

According to the IRS.gov website, “A state is a credit reduction state if it has taken loans from the federal government to meet its state unemployment benefits liabilities and has not repaid the loans within the allowable time frame. A reduction in the usual credit against the full FUTA tax rate means that employers paying wages subject to UI tax in those states will owe a greater amount of tax.”

Because Connecticut could not responsibly handle its own obligations for unemployment benefits or even a loan from the federal government, the employers of the state are paying extra tax (the highest in the nation) to bail out the state.

Our small business had to pay approximately $10,000 for the pleasure of being an employer in Connecticut. In essence, Preferred Utilities had to pay the State of Connecticut’s penalty for its out-of-control spending and fiscal incontinence. Employers are punished for employing Connecticut residents who perhaps would otherwise be unemployed, and in turn recipients of federal unemployment loan funds that the state already cannot pay back. I can only image what the state’s larger employers like IBM or UTC are paying.

Other credit reduction states that pass penalties on to employers are California (1.2 percent), Indiana (1.5 percent), Kentucky (1.2 percent), North Carolina (1.2 percent), New York (1.2 percent), Ohio (1.2 percent), and Virginia (1.2 percent). Connecticut, of course, takes the lead with a rate of 1.7 percent.

Businesses cannot vote; and therefore, I understand how tempting it is for politicians to force them to “pick up the tab” for their own political gain. I believe this is why it is easy for politicians engaged in demagogy to cry for higher corporate taxes and regulations. The truth is businesses are composed of people that politicians hurt with this kind of rhetoric and public policy. The irresponsibility of Connecticut’s government has not only hurt our employees, but also the employees of many other companies in our state.

Several times a year I get attractive packages from states that are friendly to businesses and manufacturing in particular. These states want employers and job creators to move to their states. Their public policy, tax structure and fiscal integrity speak louder than their words.

All the packages I am sent from employer-friendly states point out the taxes that Preferred Utilities Manufacturing Corporation is now paying the State of Connecticut that we would not have to pay if we move to their state. All of these packages point out that if we moved to their business-friendly state, our employee’s tax rates would drop significantly because they do not have a state income tax like Connecticut, and their property taxes, in many cases, are a third of what many of our employees pay to live in their Connecticut homes and own their cars.

These “incentive to move” packages also have interesting information. For example, the packages point out that Connecticut’s total gasoline tax is the third highest in the nation at 67.7 cents per gallon.

Gov. Malloy, wouldn’t it just be easier for you and your party’s controlled legislature to write the employers of Connecticut a note and tell us directly to get out, and that you do not care for our kind of people in your state? This beating around the bush, back-stabbing and slow, bleed-out method of making us feel unwelcome isn’t driving us out as fast as I am sure you would like us to leave. The one question you might want to ask yourself before you get rid of the last of us is: what will the state be like when all the contributors are gone and all those who voted for you, and the takers, are all that remain in the Constitution State?

The statistics show that the state is unfriendly to businesses and taxpayers alike.

A 2013 Gallup poll showed that “Forty-nine percent of Connecticut residents polled responded that they would leave if they could, compared to a 33 percent average across all 50 states.”

Fred Carstensen, an economist at UConn, is quoted in the article saying “My quick take on it is that Connecticut is a state that is struggling — a real laggard on job growth; lots of problems with the K-12 system in our larger cities; lousy transportation infrastructure; little sense that it is a state moving forward. We seem obsessed with unfunded liabilities… and other things that have nothing to do with bringing vitality back to the state.”

In its Tax Foundation Study, the Yankee Institute for Public Policy suggests some reasons why residents are not content in the struggling state of Connecticut. This study shows that “although state officials like to claim that the state has a friendly business tax environment because of its 7.5% corporate income tax rate, which places it about in the middle of other states, our state’s very high property taxes and relatively high taxes across the board account for Connecticut’s rank toward the bottom.”

Other cited factors that affected the state’s placement include:

  • Connecticut has the second highest per capita property taxes in the nation
  • The state levies sales taxes on many business-to-business transactions
  • Several other states don’t have at least one of the major taxes (corporate income tax, personal income tax, sales tax), which significantly improves their ranking
  • We are worst in the nation for our capital stock tax rate, which is a tax on business wealth
  • We are the only state with a gift tax, which significantly affects small businesses
  • Our alternative minimum tax for personal income taxes is also detrimental to small businesses, many of which are taxed at the personal income tax rates
  • Internet sales tax

According to the United Van Lines Annual mover’s study of 2014, the Northeast is experiencing a moving deficit with New Jersey (65 percent outbound), New York (64 percent) and Connecticut (57 percent) making the list of top outbound states for the third consecutive year.

Forbes Magazine also compiled the information from the United Van Lines Company, in which the company “analyzed a total of 125,000 moves across the 48 continental states and the District of Columbia in 2013 and came up with a picture of migration patterns across the U.S.” From the compiled information, Forbes determined that 59 percent of Connecticut residents move out versus how many move in.

Even more recently on March 9, 2015, Standard & Poor evaluated Connecticut’s general obligation and appropriation-secured debt at “negative” instead of “stable.” They referred to mounting pressure on the budget because of weak revenue growth in the state. S&P said “Connecticut’s ‘relatively weak’ post-recession economic growth has increased budget pressure despite a substantial tax hike in fiscal 2012.”

The Connecticut Business & Industry Association (CBIA) reports the following:
Number of manufacturing establishments in 1997 = 6,195
Number of manufacturing establishments 2014 = 4,191
Number of manufacturing jobs 1997 = 244,000
Number of manufacturing jobs 2014 = 163,800

The political party in control of setting Connecticut state policy (your party) since 1997 has successfully driven out 2,004 manufacturing companies and 80,200 taxpayers and residents.

The statistics prove that Connecticut is unfriendly to businesses and residents. Levying such heavy taxes on corporations and individuals does nothing but drive them from the state, and continue the hemorrhage of the state’s businesses and residents, leaving fewer corporations and individuals to pay the state’s outstanding loans and penalties.

There is good news at the end of this depressing letter. You, and the majority of our state legislators can clearly see the effects of overreaching government and oppressive taxation.

You have the road map right in front of you as to how we got here — beginning with the state income tax, followed by failed social policies, followed by massive tax hikes, and capped with gross and irresponsible over spending. We can follow that path backwards to prosperity, financial independence and job creation. Only willingly blind, belligerent and unreasonable political leadership would double down and forge ahead in the destructive direction we are currently pursuing.

If you continue to lead our state down this path to economic suicide, you will force me to move Preferred Utilities elsewhere.

David Bohn is the president and CEO of the Preferred Utilities Manufacturing Corporation in Danbury.

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