Some want more, some less: Malloy budget sparks tax debate

It didn’t take long for the next state tax debate to begin.

In the first 24 hours since unveiling his new budget, Gov. Dannel P. Malloy has heard from state and local officials, including some from other states.

Business and labor groups, social service advocates, Democrats and Republicans — everyone has a thought.

Though the governor insists his budget contains no new taxes, others argue he didn’t propose nearly enough.

Others say he broke his word by extending taxes set to expire.

Whether it’s income or sales taxes, credits for business or credits for the poor, state taxes or municipal, ideas are plentiful.

“We have a lot of work to do,” Rep. Patricia Widlitz, D-Guilford, co-chairwoman of the tax-writing Finance, Revenue and Bonding Committee, said Thursday, one day after Malloy unveiled a $43.8 billion, two-year budget proposal.

The governor and his fellow Democrats in the legislature’s majority approved $1.5 billion in tax and fee hikes two years ago to help close a nearly 20 percent hole in state finances left by the previous administration, and Widlitz said she suspects many lawmakers — from both parties — don’t want to talk taxes again.

“We have invested so much in economic development, and I think it has really started to take off,” Widlitz said. “I won’t close my mind, but it would have to be a really strong argument” to raise taxes further.

But a key segment of Malloy’s base wants the governor to follow President Obama’s lead and ask Connecticut’s wealthiest 1 percent to pay a little more to protect vital social service and education programs.

Better Choices for Connecticut, a coalition of four dozen public- and private-sector unions and social service advocacy groups urged Malloy to seek an extra $835 million from taxpayers, with nearly half of that coming from two new top rates on the state income tax.

  • Earnings between $300,000 and $2 million would be taxed at 6.84 percent, up from 6.5 percent.
  • Earnings above $2 million would be taxed at 8.81 percent, replacing the top rate of 6.7 percent.

The coalition also is recommending: repealing a 2009 estate tax cut; closing credits and changing other loopholes in the corporation tax; adding 95 cents per pack to the cigarette levy; boosting the sales tax on professional service and luxury purchases; and toughening tax law enforcement.

“It’s time to raise critically needed revenues by ensuring the wealthy pay their fair share and closing the large loopholes Connecticut has given to corporations,” said Jane McNichol, executive director of the Legal Assistance Resource Center of Connecticut.

“Instead of addressing these revenue issues, the budget proposes to eliminate health care coverage for low-income parents,” McNichol said. “To meet our challenges, we must fundamentally and fairly change the way we tax people and corporations, not limit health care coverage for families.”

Malloy’s new budget would slash aid to hospitals to offset the cost of treating uninsured patients. It also would eliminate Medicaid coverage for thousands of poor parents with the expectation that they would get private coverage as part of federal health reform, eliminate the state-run Charter Oak Health Plan and slash payments to hospitals.

In his budget address to the legislature Wednesday, the governor again emphasized his opposition to new taxes. “The families and the businesses of Connecticut have enough on their shoulders,” he said. “This budget asks no more of them.”

But others argue that the governor’s plan does ask for more, including from those least able to afford it.

Another member of the Better Choices coalition, the Connecticut Association for Human Services, has been leading the charge to protect a new state income tax credit for working poor families. Malloy has proposed reducing the credit’s value from 30 percent of the federal EITC to 25 percent — a change that would cost working poor families about $18 million this year.

“The number of Connecticut families in poverty is among the fastest-growing in the nation. It’s not the time to raise taxes on our lowest-income working families. That’s what cuts like the reduction in the EITC mean,” Jim Horan, the association’s executive director, said. “We need to invest in policies and programs that prevent poverty and future costs, and make Connecticut competitive.”

The EITC proposal wasn’t the only one in the governor’s budget that would raise more tax revenue.

The president of the state’s chief business lobby said he was “disappointed” that the governor’s plan allows a corporate tax surcharge, an electricity generation tax and a limit on insurance premium tax credits, to continue. All were set to expire next fiscal year.

“Connecticut must make its tax system more competitive if we’re going to attract private investment, allow businesses to grow and get people back to work,” Connecticut Business & Industry Association CEO John R. Rathgeber said.

Malloy has said he doesn’t think extending expiring taxes counts as a tax increase, provided the rates don’t change — a position that has irked Richmond, Va.-based Dominion Resources, which owns two nuclear plants at Millstone Point in Waterford, and pays nearly 60 percent of the $70 million the generation tax raises per year.

Dominion and others have argued the extension would drive up electricity rates in Connecticut, and they were joined Thursday by officials from two neighboring states.

“We were disappointed that the governor included such a proposal” in his plan, Martha Coakley and Peter Kilmartin, the attorneys general of Massachusetts and Rhode Island, respectively, wrote in a letter to Connecticut legislative leaders and to Malloy.

Coakley and Kilmartin wrote that they think three-quarters of the higher energy costs resulting from the tax would be borne by ratepayers outside of Connecticut.

“In essence, the ratepayers of our states and others are bearing the burden of higher energy market prices that are the direct result,” they wrote.

Malloy’s budget office responded Thursday that “we do not think there will be any impact on Connecticut’s ratepayers from maintaining the present level of taxation, just as there was not any impact the last two years. In fact, electric rates in Connecticut have gone down 12 percent.”

Gian-Carl Casa, the budget office spokesman, added that Malloy’s new plan also features a proposal to help about 800,000 residential and business customers achieve cheaper electric rates than those currently provided through the “standard offer” arrangement provided by the state’s two electric utilities: Connecticut Light & Power Co. and United Illuminating.

The governor did offer one big tax break in his new plan, an exemption that would eliminate most of the municipal property tax on motor vehicles.

But that plan drew cautious statements and some criticism from city and town leaders and other municipal advocates, because Malloy did not propose any method to help communities recoup the revenue they would lose.

Communities collect $560 million from the tax.

“To me it was a good attempt, like a high-five — and then a punch in the gut,” said Torrington Mayor Ryan Bingham, a Republican and president of the Connecticut Conference of Municipalities.