Malloy proposes easing tax increase on the middle class

Gov. Dannel P. Malloy endorsed budget revisions Thursday that would shift some of his $1.5 billion in proposed tax increases from the middle class to wealthier residents, a major step toward the passage of a budget next week by the legislature’s Finance and Appropriations committees.

By partially restoring a property tax credit slated for elimination and by reconfiguring his income-tax increase, the governor addressed key concerns of the legislature’s Democratic majority, though he rejected continuing calls by liberals for raising the top income-tax rate beyond his proposed 6.7 percent.

“I’m pretty firm,” Malloy said. “Honestly, I think that should be our top rate.”

In a press conference called to discuss what he learned during his 17-stop listening tour on the budget, Malloy said his proposed changes would reduce the increase in income taxes by up to $300 on individuals earning up to $90,000 and on households up to $100,000.

Impact of proposed changes

Malloy also is recommending that the state offer a $300 property tax credit. His original budget proposal called for an elimination of the existing $500 credit.

To pay for those measures of middle-class relief, a single filer earning $500,000 would pay an additional $1,000 and a couple earning $1 million would pay another $2,000.

Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn, said the changes outlined by Malloy, plus his expressed openess to other revisions sought by Democrats, leave him optimistic about the Appropriations and Finance committees finalizing the spending and tax packages a week ahead of their deadlines of April 26 and 27.

“His announcement today was very important. A top priority of mine and others in the legislature was to lessen the burden on middle-class families, and the governor did that today,” Williams said.

Once the budget and tax packages clear the committees, Williams said the legislature would be ready for final action on the budget once the Malloy administration concludes it concession talks with state employees — assuming the talks are successful.

“I wanted to see a budget voted on in May,” Williams said. “So far, we’re on track to do that.”

House Speaker Christopher G. Donovan, D-Meriden, could not be reached for comment.

Malloy is seeking an unprecedented $1 billion in labor savings, but he could claim success with a smaller number. After April tax receipts are tallied, some legislators expect the revenue estimates for the next fiscal year to increase by at least $175 million, easing what Malloy would need from labor.

The leadership of the Republican minority, Sen. John P. McKinney of Fairfield and Rep. Lawrence F. Cafero Jr. of Norwalk, said Malloy effectively is reducing his $1 billion demand of labor to $825 million. Because he did not deduct the expected $175 million revenue increase from his tax proposal, labor will see the money as available, they said.

“They say, ‘Governor, you just got an extra $175 million in revenue, thank you very much,” McKinney said. “It’s a tragic mistake he’s made in negotiating right now.”

Cafero said Malloy’s proposed revisions also signalled that the Democratic governor has a budget deal with the Democratic legislature.

“This to me is the best evidence,” Cafero said. “Because the changes you saw today is not a result of the listening tour. The listening tour said cut spending. There is no spending cut. This is a result of the negotiations with the democratic legislature.”

Cafero and McKinney said that Malloy should have cut taxes, not merely shifted a portion of his proposed increase from the middle-class to wealthier taxpayers.

But Malloy also heard calls for higher taxes on the wealthy during his 17 town hall meetings, often posed by members of a progressive coalition trying to convince Malloy that Connecticut can afford to raise more revenue and still remain competitive with nearby states.

Matt O’Connor, a spokesman for CSEA/SEIU Local 2001, a member of that coalition, praised Malloy’s changes as a good step, but a small step.

“He’s clearly listening more to the working and middle-class folks who went to his town-hall meetings,” O’Connor said, but he called the changes crumbs. “They are looking for more than crumbs. They are looking for the whole loaf.”

The tax changes mean a single filer earning $50,000 would pay $1,770 in state income taxes, down from $2,070 under the governor’s original plan, a 14 percent cut. A couple making $100,000 would pay $4,208 instead of $4,508, a 7 percent cut. Filers who pay local property taxes could cut up to $300 more from their state bills.

The savings wold be more dramatic at lower incomes. A single filer earning $30,000 would pay $465 instead of $765, a reduction of 39 percent. Joint filers earning $40,000 would pay $12 instead of $312, a reduction of 96 percent.

His proposal today was only a portion of the changes expected, and Malloy acknowledged that his administration will continue to work on resolving differences on a tax-exemption for manufacturing equipment and a sales-tax expansion.

His ideas immediately opened an estimated budget gap of $123 million that would be made up in consultation with the legislature, said Benjamin Barnes, his budget director.

Malloy, whose press conference coincidentally fell on his 100th day in office, said the listening tour allowed him to get out of the bubble that tends to surround governors. He said he knows many commentators expressed doubt he was listening to the public.

“Nothing could be further from the truth,” he said.

His changes are relatively modest. From the start, Malloy said his basic mix of tax increases, service reductions and labor savings would not change.

“It allows us to remain within the basic framework of the package that I have previously forwarded to the legislature. This is not a radical change,” the governor said.

Democratic legislators had pushed the strongest for at least a partial restoration of the property-tax credit. Malloy heard them, providing a $300 credit that he recommended today after consultation with the leadership of the legislature’s Finance, Revenue and Bonding Committee.

“It covers the vast majority of the middle class of citizens,” Malloy said.

But his refusal to raise the top rate above 6.7 percent is likely to cause continued grumbling from liberal Democrats in the House.

Malloy shifts the burden to higher incomes by taxing incomes up to $400,000 at a flat rate of 6 percent, with income above that taxed at the top rate of 6.7 percent. In his original plan, income would have been taxed at a series of graduated steps, beginning at 3 percent.

Malloy outlined his recommendations in a hearing room at the Legislative Office Building that was crowded with lobbyists eager to learn how their clients would be affected. Many will have to wait for further details.

Legislators said this week that the Finance, Revenue and Bonding Committee intends to abandon some of Malloy’s proposed changed to the sales tax. The governor had proposed scrapping a series of exemptions that save consumers and select industries from paying a sales tax that would rise from 6 percent to 6.35 percent.

The governor declined Thursday to name exemptions he expects to remain on the books, saying only that those details will be worked out with the legislature.