Chris Powell: Well-run states shouldn't need to bribe to keep firms

  Back in June the leaders of the Democratic majority in the Connecticut General Assembly, having just passed another huge tax increase, including substantial business taxes, scoffed at complaints by major businesses, including General Electric, whose headquarters is in Fairfield. GE threatened to leave the state.

Senate President Martin Looney, D-New Haven, said GE was just using the tax increases as an excuse for layoffs it already planned. House Speaker Brendan Sharkey, D-Hamden, agreed, adding that GE was "fear mongering" and that tax policy couldn't be inducing the company to move. They noted that GE probably wasn't paying much in state corporation income taxes at the moment, but that was misleading. For GE's resentment seems to have been triggered by the state's change to a system of "unitary taxation," by which corporation earnings attributed to transactions out of state would be taxed here too.

Governor Malloy didn't scoff as his party's legislative leaders did. The governor took the business complaints seriously and persuaded the legislature to reconvene in special session to reduce and delay the tax increases. While this wasn't much, the governor long has been offering tax breaks and grants to induce businesses to locate or stay in the state, so he knew intimately that other states are doing the same thing and that most big businesses today have little loyalty to anything beyond money.

The other businesses that complained about the tax increases may have been mollified but not GE. There lately have been reports that the company is negotiating its relocation with Georgia and New York and that the Malloy administration is assembling a counter-offer. If GE pays little in state taxes now, it soon may pay even less.

GE most benefits the state economically not through corporate income taxes but through its huge employment, about 5,700 people here, and through the income, property, and sales taxes they pay. That would be a lot of jobs to lose.

But paying GE to stay would have its own costs. State government would be seen to have yielded to a major extortion and the other big companies that complained about "unitary taxation" and an ill-conceived tax on data processing would be tempted to try their own. Indeed, GE's extortion likely was encouraged by the extortion paid by state government last year to United Technologies Corp. for little more than the company's promise to keep its employment here steady while it expands elsewhere.

Smaller businesses, which don't have the same leverage, would be further demoralized by the unfairness of paying GE to stay, since, in effect, everybody else in Connecticut would be having his taxes increased just to keep GE and its employees happy.

This really isn't "economic development." Since it just shifts burdens from one set of businesses to another set, it's more like political patronage and corporate welfare, and it should stop.

For if Connecticut cannot attract and sustain business by virtue of its basic characteristics -- labor force skills, transportation and technological infrastructure, favorable taxation, efficiency of government, and general living conditions -- the state should work on those characteristics before it pays extortion. Surely those characteristics need much improvement.

For starters, if state government ever could regain control over government employee costs and stop its welfare system from perpetuating poverty through child neglect and abuse, it could easily forgo all revenue from big companies that might try extortion.

Imagine being able to tell GE and the world that Connecticut is so well-managed and attractive that it doesn't need to pay extortion. Of course,  that would require alienating the government employee unions and welfare recipients, child abusers and their coddlers. But there may be a reason why no states are bidding for them.

Chris Powell is managing editor of the Journal Inquirer, in Manchester, Conn.