Opinion: Taxes, Taxes, and More Taxes How Are They Affecting Connecticut's Small Business Owners?

Taxes, Taxes, and More Taxes.

How Are They Affecting Connecticut’s Small Business Owners?

BY: ADRIELYS GOMEZ

Connecticut has suffered some of the slowest employment and personal income growth in the U.S. following the 2008 financial crisis, despite the fact that the national economy has been booming. The state currently has some of the highest state and local taxes. The COVID-19 pandemic did not help matters either. The pandemic has had a “large negative impact” on 34 percent of small business owners in Connecticut, which is nearly 4 percent more than the national average. Small business owners already take years to break even, but during the pandemic, Governor Ned Lamont issued stay-at-home orders that forced many mom-andpop shops to close in hopes of “flattening the curve.” Although Connecticut’s reaction to COVID-19 has made it a leader among the states, major uncertainty lingers as the state fights to handle the public health crisis. Connecticut’s economy took a significant blow as a result of coronavirus shutdowns and restrictions, with the state losing a record 291,300 jobs in March and April of 2020 — more than 17 percent. Connecticut performed better than other states during the early economic downturn, and the U.S. Bureau of Economic Analysis has estimated that the state’s GDP fell 4.6 percent in the first three months of the year. What does this mean for small businesses? Once doors were able to reopen, small business owners felt the sting of the pandemic’s toll the most, struggling to stay afloat and pay their employees. It is also important to note that small businesses make up nearly 99.4 percent of businesses in the state and employ at least 48.4 percent of the workforce at any given time.1 These are the same businesses that will be at the forefront of the state’s recovery from the pandemic as we start to move back to normalcy.

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The federal government acknowledges the importance and impact of small businesses on the economy; therefore, it passed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to alleviate and reduce economic harm. Both the CARES Act and the Families First Coronavirus Response Act contributed significantly. Connecticut is a considerable economic contributor to the nation. The state is no stranger to small businesses; in fact, when the financial system in Connecticut is examined, it is sometimes referred to as the “state of small business.” Connecticut’s support for small companies has been obvious in its pro-business attitude over the past several years, which continues to assist thousands of businesses and help them operate in the present climate. In order to foster growth in the state’s economy, two things should be done First, restore the Research & Development Tax Credit (R&D Tax Credit) to recruit entrepreneurs, nurture new enterprises, and encourage private sector investment. The R&D Tax Credit is provided to businesses that create new or better business components such as processes, computer software, methods, formulations, or innovations that result in new or enhanced functionality, performance, dependability, or quality. It is a straightforward dollar-for-dollar tax savings measure that decreases a company’s tax bill. There is no annual restriction on the amount of costs and credits that companies can claim. This tax credit frequently offers a source of extra income to a wide range of businesses — up to 10 percent of yearly R&D expenses for federal purposes and substantially more when state incentives are taken into account. It is one of the best options for businesses to significantly cut their tax obligations. Companies from a variety of sectors can qualify for federal and state tax breaks for what amounts to their everyday operations, which allows them to recruit qualified personnel, invest in new goods and service lines, and expand their operations. Best of all, the R&D Tax Credit is available to businesses of all sizes, not only large corporations with research facilities. Second, reduce state and pension spending; the total debt for costs, including retirement costs, totaled $79.5 billion in 2021. By broadening the tax base

and cutting tax rates, mom-and-pop shops will be able to survive and hopefully thrive, as smaller businesses face the highest tax burdens. In November of 2021, because of a strong stock market and federal coronavirus aid, the current fiscal year budget surplus climbed by $400 million to roughly $900 million.2 According to the most recent fiscal report from the Office of Policy and Management, the fiscal year 2022 surplus would be $894.7 million — above the forecast $274.9 million surplus. The current expected surplus comprises $802.7 million in excess collections and $92 million in net spending below the legislature’s authorized If a comprehensive tax relief strategy that benefits both small businesses and individuals is implemented, then Connecticut can become a business hub while also attracting individuals to fill its workforce. … Reinstating or increasing tax incentives such as the R&D Tax Credit and the Apprenticeship Credit can act as catalysts for much-needed positive growth. budget. Connecticut’s rainy-day fund is expected to reach about $5 billion by June 30, 2022. With a current balance of $3.1 billion — the statutory maximum — the state’s reserve fund that had little capital in 2011 is now one of the healthiest in the country. Excess revenues must be used to reduce unfunded obligations in the Connecticut Employees’ Retirement System and the Teachers’ Retirement System, according to legislation. In 2017, bipartisan fiscal reforms laid the groundwork for a reversal in fiscal fortunes. Connecticut’s bond credit rating reflects a significant improvement in the state’s fiscal practices.3 The surplus represents an opportunity for the state to start paying long-term liabilities and begin minimizing future deficits. If a comprehensive tax relief strategy that benefits both small businesses and individuals is implemented, then Connecticut can become a business hub while also attracting individuals to fill its workforce. The implemented tax policy should indicate the level of importance STEM sectors are to the state, which can benefit the state as a whole and help it grow. Reinstating or increasing tax incentives such as the R&D Tax Credit and the Apprenticeship Credit can act as catalysts for much-needed positive growth.

Figure 17: Connecticut GDP All Industry Total

Adrielys Gomez ’22

Major: Behavioral Economics Hometown: Guaynabo, Puerto Rico

https://foreignusa.com/small-businesses-in-connecticut/. https://www.cbia.com/news/issues-policies/tax-relief-calls-as-budgetsurplus-jumps/. https://portal.ct.gov/Office-of-the-Governor/News/Press-

Releases/2021/05-2021/Governor-Lamont-Says-Four-Credit-Rating-

Upgrades-Recognize-a-Major-Shift. https://portal.census.gov/pulse/data/. https://www.cbia.com/wp-content/uploads/2021/03/Marcum_20.pdf. https://www.cbia.com/news/small-business/2019-small-businessclimate/. 1 Small Business Pulse Survey. 2 Survey of Connecticut Businesses. 3 Report: High Taxes, Mandates Hurt State’s Small Business Climate