Governor Malloy is set to sign a “jobs bill” today. It entails making the state of Connecticut a venture capitalist enterprise handing out cash to businesses along with tax credits, loans, flowers, and free toasters to people who hire other people.
Existing businesses in Connecticut don’t see much benefit to this because “they can handle” (Malloy’s words) higher taxes and a new set of regulations. Malloy wants to lure businesses from other places and to do that he’s willing to give them tens of millions of dollars like he did with NBC sports and others.
The problem here is a few hundred jobs won’t make much of a dent in the overall scheme of Connecticut’s economy. Any plan that puts people to work would have see hundreds of thousands getting jobs. What the legislature and the government are doing is making it appear they are doing something even though it’s a drop in the bucket in the unemployment rate. The appearance of getting things done is just as good as actually accomplishing anything substantive. This is what they are betting on and they’re probably right providing the economy doesn’t get worse.
The question then becomes, why should this work? The answers is because employers will be paying less money to the state and in some instances get cash. Theoretically they will have room to expand and hire people. The people they hire will then become new tax payers and they will likely buy houses and shop in Connecticut further adding revenue.
What’s wrong with that? Nothing. Well, not nothing. The problem here is some businesses get a break while others pay the same old not conducive to hiring tax rate. If Malloy and the Democrats in the legislature would just make a small leap in logic and consider that if their plan is good for incoming business it ought to be good for all business. If they did that then they may just give to all businesses what they are giving to the new comers save for the cash handouts ie: bribes.
Here’s why they don’t do that. Politicians have a static view of budgeting thinking that tax rates don’t affect behavior. This means that if the state were to cut the tax rates on producers giving them more a return on investments, the state will be short revenue equal to that of the tax cut. It’s a fallacy because they don’t consider the residual affects of new workers paying taxes locally as well as the state. If large enterprises went to Connecticut because of a tax rate friendly to business it would spur economic growth and generate revenue because the pool of tax payers will be larger.
Since Connecticut’s government won’t cut spending they can’t take a chance on a perceived loss in revenue. In fairness it is difficult to asses what revenues would be since they don’t exist before any major tax reform. A cut in a dollar is a cut in a dollar. To think tax cuts would produce a better economy, well, that’s conservative stuff. Big no no.