Business: Trim Sales Tax, Encourage Loans

26-11-08

Connecticut's small businesses employ most of our state's workforce. As Congress and our General Assembly look at shaping their budgets and turning around the economy, they must ensure that whatever they do ultimately provides assistance to small business.

Being president of the Connecticut Automotive Retailers Association offers me a good insight into the problems of small businesses. I work for 300 small-business people who employ 14,400 people in good jobs with great benefits. The average salary for an employee of a new car dealership is $54,987. The retail auto industry accounted for 17 percent of all Connecticut sales tax revenue last year. Total annual sales of all new vehicles from dealerships in Connecticut are about $9 billion per year. Our dealers, like all small businesses, pay corporate taxes, payroll taxes and local property taxes that support state, federal and local government services.

In 1991 and 1992 when the state income tax was adopted, Connecticut was facing an economic crisis. State government was unable to support services, revenue was falling, business was hurting and credit was difficult.

Today, the situation state government faces is difficult but different. The budget situation is bad, but as a percentage of the overall budget the difference between revenue and spending is not as severe. Fortunately, the legislature and governor have been relatively careful in crafting budgets together over the past few years.
Our problem as a state, however, is different from 1991 in that the crisis extends far beyond the borders of state and country. The international economic situation requires fast action at all levels of government to keep the world from sliding into a long recession.

So what can we do here in Connecticut to help? First of all, we need to let our federal lawmakers know that they need to cast some very tough votes to rescue the economy and the jobs — both in manufacturing and finance — that are the backbone of our economic life.

State government needs to take action as soon as the special session that begins Monday. The legislature and the governor should:

• Pass a temporary cut in the sales tax rate between now and the end of December to encourage consumers to spend. This may seem counterintuitive, but consider that 6 percent of zero is zero. In other words, if we can encourage consumers to make purchases now that they otherwise would not make, the state could possibly end up with more sales tax revenue, even at a lower sales tax rate.

Holiday retail sales can make or break small businesses and the jobs they provide all year 'round. Small businesses that we lose this holiday season will be gone. That means loss of jobs, corporate taxes, income tax and property taxes. The state will then have to deal with increased spending for unemployment benefits and assistance programs that are already heavily burdened by the economic downturn.

• The state should also expand loan guarantee programs to spur local and regional banks to take on additional risk in dealing with small businesses. Connecticut banks did not indulge in the subprime mortgage fiasco as did banks in the West and South.

Connecticut banks have substantial liquidity; they must put it to work. The U.S. Treasury is pumping $125 billion into local and regional small banking institutions. Last week, the Treasury issued a bulletin encouraging banks to use that liquidity to support small business, and job creation and retention, by making loans and credit available.

On the federal level, there are some complementary actions that would further help states turn around their economies:

• Provide for deductibility from the income tax of sales and excise taxes on large purchases such as automobiles. This would encourage consumers to spend — benefiting consumers, bolstering tax receipts and preserving jobs.

• Provide for deductibility of interest on large consumer loans, tuition assistance and perhaps even credit card interest debt.

• Implement a Small Business Stabilization Program within the Small Business Administration to establish a loan guarantee program, making more credit available, especially for inventory finance.

Source: http://www.courant.com/news/opinion