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9
Connecticut CPA
g
November/December 2012
Michael S. Hill, CPA
is a senior accountant
at Harper & Whitfield
in Farmington.
He can be reached
at msandersonhill@
gmail.com or
630-398-9903.
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time analyzing compliance. Many
business owners keep staffing under a
certain threshold to avoid requirements
or to qualify for a special program. A lack
of neutrality distorts economic decisions
and encourages malinvestment, thereby
distorting the broader economy over the
long-term.
Stability
Stability in the tax and regulatory sys-
tem is vital, because without it, long-
term plans are difficult to formulate.
The past few years have been more
unstable than usual, with a variety of
temporary provisions enacted in re-
sponse to Connecticut's fiscal prob-
lems. Short-term measures often make
the situation worse. They create unpre-
dictability, making strategic planning
troublesome and increasing invest-
ment risk.
Stability and predictability are also im-
portant to the state's budgeting pro-
cess. Our budgetary problems are in
large part due to structural problems
with the tax code. The state bases
revenue estimates on sources that are
difficult to accurately project. A large
proportion of our population's income
comprises variable and unreliable
sources such as capital gains, divi-
dends, and interest. Interest income,
for example, continues to be overes-
timated, as Federal Reserve Chairman
Ben Bernanke recently announced that
the Federal Reserve extended the time
period it intends to hold short-term in-
terest rates near zero at least through
mid-2015. The state budget also re-
lies on estimated bonus income from
financial sector employees, which has
varied greatly in recent years.
Simplicity
Simplicity allows for efficacy of the
tax code and regulations enacted.
Excessive complexity increases the
cost of compliance both monetarily and
in terms of time consumed. This results
in fewer resources being available for
productive activities.
Additionally,
simplicity
increases
the fairness of tax and regulatory
systems. It ensures higher compliance
and avoids costs borne by the
state associated with enforcement.
Simplicity is a function of neutrality
and stability, systematically increasing
competitiveness and economic growth.
Moving Forward
Taxation and regulation that follow
these three principles will create a more
competitive business environment and
attract investment. There are a number
of ways to ensure these principles are
considered in the legislative process.
First, we must advocate the importance
of continuously clarifying rules and
streamlining processes. Second, any
proposed tax laws and regulations
should be examined and benchmarked
against extremely high standards. The
costs versus benefits of all actions
should be carefully considered in all
circumstances to ensure changes are
truly in Connecticut's best interest. We
must guard against the impetus that the
state must constantly do "something"
in every case. Poorly conceived rules
and regulations are often worse than
none at all.
CPAs and their clients need to keep in
mind the tremendous influence state
taxes and regulations have on the
state's businesses. Equally important
to remember is the ability constituents
have to make a meaningful impact on
the state legislative process due to
the relative lack of attention the po-
litical process often receives at this
level. Generally Assembly seats are
sometimes decided by only a handful
of votes.
We should all work on a grassroots
level to educate our local officials
about how regulations impose bar-
riers and challenges to starting, de-
veloping, and operating a business
in Connecticut. The small business
community in our state has the abil-
ity to meaningfully impact the tax and
regulatory climate to ensure neutrality,
stability, and simplicity and thereby
help address both the immediate and
long-term impacts of Connecticut's
debt and deficit problems.