Blog: Jobs & the Economy

Jobs & the Economy, Taxes & Government Spending

State-Run Retirement Plan For Private Sector Workers A Bad Idea

  • Mar 17, 2014
  • by Ben Zimmer & Helen Fang
State-Run Retirement Plan For Private Sector Workers A Bad Idea

The Connecticut General Assembly is considering a bill that would establish a state-run retirement plan for private sector workers and require any business without a retirement plan to set up direct-deposit and payroll-contribution systems for the state plan.  The mandate would apply to businesses with five or more employees.

Proponents of the bill have relied on a misleading claim from the AARP that “more than 600,000 workers in Connecticut have no access to a retirement plan” beyond Social Security.  It is true that many Connecticut residents do not have access to employer-provided retirement plans, but any employed Connecticut resident can set up a tax-preferred Individual Retirement Account (IRA) through one of many private financial companies.  For instance, Charles Schwab offers an IRA with no annual fee, a minimum account balance of $1,000, and an option to automatically transfer funds each month from a checking account.

In addition to being unnecessary, this bill would have several adverse impacts.  For example, the costs of managing the state-run plan would fall on taxpayers as Connecticut faces ongoing deficits averaging more than $1B per year beginning in July 2015.  And the fees associated with mandatory payroll-contributions to the state plan would add to Connecticut’s already unfriendly small business climate, stifling job growth.

Connecticut’s government has shown little ability to design and manage effective retirement plans for its own employees.  As the charts below show, Connecticut’s unfunded public pension liabilities have grown by 65% since 2006 and are among the highest per capita in the country.  Fixing this should be the state’s retirement security priority.

About the Author: Ben is the CPI's Executive Director; Helen is a CPI Policy Analyst

Jobs & the Economy, Legislation

Benefit Corporations Coming To Connecticut?

  • Feb 19, 2014
  • by Helen Fang & Ben Zimmer
Benefit Corporations Coming To Connecticut?

The Connecticut General Assembly is considering legislation that would create a new corporate form in Connecticut – the “benefit corporation.”  Benefit corporations are for-profit companies that receive no preferential tax treatment from the government.  But unlike traditional companies they are required to pursue a “positive impact on society and the environment,” as assessed against a third-party standard, in addition to the economic interests of shareholders.

Benefit corporations have become increasingly popular with advocates of so-called socially responsible investing, and legislation allowing for benefit corporations has already been passed in twenty states.  There are currently more than 550 benefit corporations across the country, including clothing-maker Patagonia and brownie-producer Greyston, which supplies Ben & Jerry’s.

Anyone investing in a benefit corp. understands that economic returns may be lower than with a traditional corporation, so there is no reason not to allow new companies to incorporate in this way if they wish.  On the other hand, if an existing publicly traded company wishes to reincorporate as a benefit corporation, their present shareholders could be harmed.  Delaware, where 50% U.S. publicly traded companies are incorporated, addresses this risk by allowing publicly traded companies to reincorporate as a benefit corporation only with the approval of 90% of shareholders.  Connecticut’s proposed bill would allow this change with only a 2/3 majority. 

The Connecticut General Assembly should pass legislation allowing for the formation of benefit corporations under CT law, but only after amending the proposal to include protections as rigorous as Delaware’s for shareholders of existing publicly traded companies. 

About the Author: Helen Fang is a CPI Policy Analyst; Ben Zimmer is CPI's Executive Director

Jobs & the Economy, Taxes & Government Spending, Education, Healthcare

Analysis on Tax, Healthcare, Education Bills From First Week of CT legislative session

  • Feb 11, 2014
Analysis on Tax, Healthcare, Education Bills From First Week of CT legislative session

The 2014 CT legislative session opened last week with a flurry of proposed bills from legislators.  Most bills proposed in the first weeks of the session include very little detail about what they will actually do – rather, they serve as placeholders that are referred to committees where they may be fleshed out in greater detail.   But a few bills did include specific proposals – here are a few of the most consequential for economic and education policy, accompanied by brief policy analysis:

H.B. 5012 and 5021, proposing to repeal the state’s Business Entity Tax 

Connecticut’s business entity tax imposes a $250 biannual fee on any company doing business in Connecticut.  The tax is a major deterrent to small business creation in the state, forcing companies to pay a fee even if they are not yet turning a profit.  The tax is not a major revenue source for Connecticut, bringing in about $40M per year of revenue.  That’s or less than a quarter of one percent of overall state tax revenue.  Repealing it is good policy.

H.B. 5003, proposing to repeal the state’s Earned-Income Tax Credit (EITC)

The Earned-Income Tax Credit (EITC) is a federal program that provides a tax-credit to low-income workers.  For any Connecticut taxpayer eligible for the federal credit, Connecticut provides a state tax credit equal to 27.5% of the federal credit.  The EITC has generally drawn bipartisan support as a way to provide work incentives and keep low-income families out of poverty.  There have been a number of good proposals to simplify the administration of the tax credit, but repealing it is not good policy. 

SB 5, 8, and 10, proposing new coverage mandates for health insurance plans

As of 2012, Connecticut already imposed 65 mandates on health insurance plans, the fourth most in the country and well above the national average of 43. Connecticut’s large number of coverage mandates is one reason it trails only Massachusetts and Alaska in per capita healthcare costs.  At a time when health insurance premiums are already facing upward pressures and the state is struggling to grow jobs, adding yet more mandates may not be the best idea. At the very least, the legislature should carefully study the costs of these particular mandates before passing them.

H.B. 5005, proposing to increase state aid to towns that pay for inter-district magnet schools

When students choose to attend a magnet school in another district, the state provides a grant to that district to help defray the cost of the students’ education.  However, that grant does not fully compensate the receiving district for those costs.  The best way to address this challenge is to adopt a student-based funding model in which students “carry” an allotted per-pupil funding level with them to whichever school they attend. The allotted amount per student should be based on a weighted student formula that allocates more state money for students whose education is more costly, such as those in extreme poverty, English Language Learners, and special education students.  HB 5005 should be amended to enact student-based funding in Connecticut, which would improve equity and accountability in state-funded public schools.

Here is a full list of bills introduced so far in the CT Senate and House.

Jobs & the Economy, Taxes & Government Spending

Four Reasons CT's Projected Budget Surplus Doesn't Warrant Celebration

  • Jan 22, 2014
Four Reasons CT's Projected Budget Surplus Doesn't Warrant Celebration

Connecticut is on track to end the current fiscal year (2014) with a $500M budget surplus.  Unsurprisingly, our leaders in Hartford are already celebrating.  Here’s a few reasons these celebrations may be unwarranted: 

1.     This Surplus Was Only Achieved By Borrowing To Cover Operating Expenses

Connecticut’s current budget borrows $625 million to cover operating expenses, including:

  • Delaying repayment on $392M of bonds that had come due;
  • Borrowing $112.8M to partially reimburse municipalities for diverting local revenues to state government;
  • Borrowing $60M more than in the previous budget ($120M total) to fund town aid road grants;
  • Borrowing $40M to buy back tax credits issued under the Urban and Industrial Site Reinvestment Program;
  • Borrowing $20M to compensate the state’s Stem Cell Fund for the $20 million diverted from that fund into the general fund.

This is the state government equivalent of taking a loan from the bank to put money in your bank account.  Your account statement has a greater balance, but you’re not actually any richer.  The same is true of Connecticut's government.

2.     This Surplus Reflects Increases in Tax Rates

Governor Malloy has consistently claimed that the current budget did not raise taxes.  This is simply untrue.  The budget raised tax rates to cover at least $275M of spending, including:

  • Raising the gas tax by 4 cents per gallon and diverting $109.7M of revenue from that tax increase out of the special transportation fund and into the general fund;
  • Extending a 20% corporate tax surcharge that was due to expire to cover $118M of spending;
  • Temporarily reducing the Earned Income Tax Credit (which benefits low-income workers) to cover $32.1M of expenses;
  • Temporarily extending an electric generation tax that was set to expire to cover $17.5M of expenses.
  • All of this, of course, is over and above Connecticut’s 2011 tax increase, which was the largest in state history and fell most heavily on middle-income workers.

3.     This Surplus Does Not Reflect Connecticut’s Long-term Fiscal Outlook

The current budget relies on roughly $400M of unsustainable, one-off revenues, including more than $175M from the state’s tax amnesty program and $220.8M from transferring windfall revenues from the last budget to the current budget.  Unlike revenues from borrowing, these revenues do reflect an actual increase in state government’s wealth.  But unfortunately they are a one-off infusion, not a sustainable income stream.   Beginning in Fiscal Year 2016 the CT General Assembly’s non-partisan Office of Fiscal Analysis projects ongoing deficits that average more than $1B per year.

4.     This Surplus Does Not Reflect A Meaningful Recovery in Connecticut’s Job Market

Although analysts estimate Connecticut’s income tax revenues will grow by 3.5% over last fiscal year, this estimate results almost entirely from gains in the stock market, which grew by 30% in calendar year 2013.  The most recent projection of income tax revenue from paycheck withholding (which reflects employment levels and wages / salaries in the state) actually lowered revenue expectations from previous estimates.

Jobs & the Economy

CT Job Growth Continues to Lag Nation, Northeast

  • Dec 03, 2013
CT Job Growth Continues to Lag Nation, Northeast

The U.S. Department of Labor recently released its state-by-state job numbers for September and October, and the results for Connecticut are not promising. 

The department’s survey of employers indicates three consecutive months of job losses, almost entirely erasing the 10,000-job gain posted in July.  Over the summer state officials and other observers celebrated that gain with much fanfare, but as the CPI hypothesized at the time it appears to have largely been a statistical anomaly.  As these CPI charts show, the employer survey’s longer-term trajectory continues to be one of slow growth, lagging both the country as a whole and most of Connecticut’s northeast neighbors.

The department’s survey of households indicates an uptick in employment for September and October, continuing a trend of slight growth since April.  The household survey continues, however, to show year-over-year job losses, as it has since 2011.  As with the employer survey, Connecticut’s household survey data indicates the state is performing worse than the nation as a whole and its northeast neighbors.

What it Means For You: Connecticut's economy remains on a negative trajectory relative to its peers in the northeast and the rest of the country.