A key legislative committee advanced a bill March 30 that treats productivity as a taxable liability rather than an economic strength.
The Finance, Revenue, and Bonding Committee approved SB 515, which imposes a new “workforce and productivity gap surcharge” on employers, on a 34-20 vote.
Two Democrats—Rep. Jill Barry (D-Glastonbury) and Rep. Kerry Wood (D-Rocky Hill)—joined all Republicans on the committee in voting against the measure.
“This bill does nothing more than undermine Connecticut’s economy,” said CBIA vice president of public policy Chris Davis.
“Rather than address critical economic challenges like Connecticut’s high cost of living and the workforce shortage, this proposal further burdens employers.”
‘Productivity Gaps’
SB 515 directs the Office of Policy and Management to develop a formula to identify so-called “productivity gaps,” generally defined as situations where revenue remains stable or increases while payroll or workforce levels decline.
Employers identified as having such a gap could be subject to a new annual surcharge.
Supporters of the bill argue that the policy is intended to address concerns about artificial intelligence and automation displacing workers, and to generate revenue for workforce training and retraining programs.
The bill’s mechanism to address these concerns, however, is fundamentally flawed.
SB 515 penalizes productivity gains—something Connecticut should be encouraging, not discouraging.
At its core, SB 515 penalizes productivity gains—something Connecticut should be encouraging, not discouraging.
Productivity improvements are not inherently harmful. In fact, they are essential to:
- Growing wages over time
- Keeping Connecticut businesses competitive
- Supporting long-term job creation
- Making it possible for employers to invest in workers, training, and benefits
“By linking a surcharge to changes in revenue, payroll, and workforce metrics, the bill effectively punishes employers for becoming more efficient,” Davis said.
“And it does so even when those gains are driven by investments in technology, process improvements, or capital upgrades.”
Increased Uncertainty
One of the most troubling aspects of SB 515 is the uncertainty it will create for businesses making long-term decisions.
Employers will be left guessing whether a future investment—made in good faith to improve operations—could later trigger a new tax liability.
That uncertainty discourages investment and innovation, precisely at a time when Connecticut should be working to attract and retain employers.
Employers will be left guessing whether a future investment could later trigger a new tax liability.
“SB 515 creates uncertainty around how those investments will be evaluated and taxed, discouraging businesses from pursuing efficiency improvements that will otherwise benefit workers and consumers alike,” Davis said.
This concern is especially acute for small businesses who often operate on tight margins.
For those employers, even the possibility of an unpredictable surcharge can influence whether they invest, expand, or hire.
Wrong Signal, Wrong Time
Connecticut employers are currently facing tens of thousands of unfilled job openings.
In an environment such as this, lawmakers should focus on:
- Encouraging efficiency and productivity
- Expanding workforce pipelines
- Supporting training and upskilling
- Reducing barriers to investment
SB 515 moves in the opposite direction by signaling that productivity improvements—rather than being a driver of growth—now represent taxes.
Serious Governance Concerns
Beyond its economic impact, SB 515 raises significant governance and legal concerns.
The bill authorizes OPM to implement a tax surcharge plan if the legislature does not affirmatively reject it by July 1, 2027.
This approach effectively delegates core taxing authority away from the General Assembly and bypasses the state’s established regulatory review process, including oversight by the Regulation Review Committee.
This approach effectively delegates core taxing authority away from the General Assembly.
Tax policy should be set by elected lawmakers through a transparent process—not implemented by default through administrative action.
CBIA agrees that workforce development, training, and adaptation to new technologies are critical priorities.
However, taxing productivity is not the solution.
For more information, contact CBIA’s Chris Davis (860.244.1931).