Malloy, legislators unmoved by campaign for higher taxes

A progressive coalition’s campaign to nudge Gov. Dannel P. Malloy and the General Assembly towards a bigger tax increase and a new 8.95-percent tax bracket for multi-millionaires quickly was branded a non-starter Wednesday.

The legislature is likely to adjust the governor’s tax plan by adopting a slightly more progressive income-tax structure than Malloy’s top rate of 6.7 percent, but there is no serious support for a tax increase beyond the $1.5 billion proposed by Malloy, legislative leaders said.

“We want to stay within the parameters of his budget,” said Rep. Patricia M. Widlitz, D-Guilford, co-chairwoman of the Finance, Revenue and Bonding Committee. “We’re certainly not going beyond that.”

Malloy is expected Thursday to outline changes to his tax-and-spending plan at a press conference he has called to reflect on his first 100 days in office and discuss what he learned during a 17-stop listening tour that concluded Tuesday night.

“You’ll see some changes,” said Widlitz, who has been meeting regularly with Malloy’s budget director, Benjamin Barnes, and his deputy, Mark Ojakian. “I don’t want to say what I think the governor will say.”

House Majority Leader J. Brendan Sharkey, D-Hamden, and Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn, said in separate interviews that Malloy and the legislature each have listened to the public and are ready to make changes.

“Legislators have heard from constituents. The governor, to his credit, has been holding his town-hall meetings,” Williams said.

Sharkey and Widlitz said they expect that Malloy will abandon some aspects of his tax plan that provoked frenzied opposition, yet would raise relatively little new revenue.

Malloy has proposed broadening the sale tax to many services and products now exempt; almost all the exemptions have ardent defenders. Sharkey and Widlitz declined to identify the exemptions they expect the governor to now retain.

But Malloy’s own staff has acknowledged that the governor is likely to rectify one fiscal proposal that would cost millions in state aid to a handful of municipalities. His original proposal called for eliminating state reimbursement for a property tax exemption on manufacturing equipment, a change that would have a disproportionate effect on several financially stressed communities.

Legislators also have pressed Malloy to restore at least a portion of the $500 property tax credit slated to disappear in his budget at a savings of $365 million.

By repeatedly telling his town-hall audiences that their comments would lead to some changes in his budget, Malloy has raised expectations he will announce changes Thursday.

“I think there will be a clear indication that in fact he was listening,” said Roy Occhiogrosso, his senior adviser. “If you don’t demonstrate by your actions you are listening, I’m not so sure people believe you were listening.”

Malloy has described himself as open to a more progressive income tax structure, yet he also is insistent on remaining competitive with neighboring states, especially New York.

And that is a hurdle that Better Choices for Connecticut, a coalition of unions and progressive advocacy groups, is trying to overcome with a series of reports and studies supporting its contention that Connecticut can afford to raise taxes beyond Malloy’s proposal.

Not surprisingly, elected officials have shown no appetite for raising taxes beyond $1.5 billion, even when shown data that Malloy’s proposals do not represent a large expansion of taxes relative to income in the state. The data show, according to the coalition, that taxes could go higher still without departing from the revenue-to-income proportions of other states or Connecticut’s historical levels.

The coalition is asking Malloy and the legislature to consider a top income tax rate of 8.95 percent on incomes above $2 million. His budget proposes expanding the number of tax brackets from three to eight and raising the top rate from 6.5 percent to 6.7 percent.

At a press conference Wednesday, the group presented research indicating that tax rates play at most a modest role in affecting the migration of taxpayers to other states, a fear raised by Malloy and some legislators.

“If you raise state income taxes for the wealthiest people, the overwhelmingly majority of them will stay, and you will get significant new revenue to meet public needs,” said Jon Shure of the Center on Budget and Policy Priorities. “That’s the bottom line in every state that has raised income taxes on the wealthiest people.”

One recent study tracked the migration of California residents to the low tax states of Arizona, Nevada and Texas. But it ignored that California also is the top destination of people leaving those same three states, Shure said.

A Princeton study found that a tax increase in New Jersey on households with an annual income of more than $500,000 did lead to the departure of taxpayers who would have paid $16 million in taxes. But the net increase in revenue to the state was $1 billion, Shure said.

“That’s pretty compelling, and it shows that people will not move if you raise their taxes. People move for all kinds of reasons, mostly for job reasons or family reasons,” Shure said. “The census asks that question every year, and taxes don’t even show up as a reason why people move from state to state.”

While Malloy has insisted on keeping Connecticut’s top rate below the 6.85 percent top rate that takes effect next year in New York, the coalition said that Connecticut’s total tax burden would remain lower, mainly due to more favorable property taxes, even if the state’s top rate crept higher.

A new study by Connecticut Voices for Children, a coalition member, found that property taxes on homes in wealthy New York City suburbs were as much as 232 percent higher than taxes on comparable homes in Greenwich.