Popular proposal for tax reform: Roll back recent increases

Carl Schiessl, director of regulatory advocacy for the Connecticut Hospital Association, addresses the State Tax Panel Wednesday.

Keith M. Phaneuf / CTMirror.org

Carl Schiessl, director of regulatory advocacy for the Connecticut Hospital Association, addresses the State Tax Panel Wednesday.

A public hearing on how to reform Connecticut’s tax system evolved Wednesday – at least in part – into a critique of the $1.3 billion tax hike built into the two-year state budget legislators and Gov. Dannel P. Malloy approved earlier this summer.

Despite warnings from leaders of the State Tax Panel that its recommendations must be revenue neutral – a proposal to lower one tax must be accompanied by a matching increase to another tax – participants objected to higher rates or new fees on corporation, sales, income, hospital and estate taxes.

The testimony also sparked pushback from Malloy administration officials and legislators on the panel, who argued the tax increases were not oppressive or unfair as some critics claimed.

The head of the state’s ambulatory service center association said a new tax on these outpatient centers’ gross receipts is “an example of how poorly thought-out tax policy has created unintended consequences.”

Association President Ken Rosenquest argued this increase “would have a crippling effect on centers” forcing some to shed jobs, and others to close, thereby reducing access to health care.

Todd Whitehouse, the owner of Connecticut Car Wash of Manchester and a former president of the state association of car wash owners, said lawmakers “passing taxes in the 11th hour … without any opportunity for public comment,” has put coin-operated car washes at a significant disadvantage.

Holding aloft a coin receptacle used by car washes, Whitehouse said the device is built to accept dollars, quarters or tokens. It can’t be modified quickly or easily to collect the pennies and nickels needed to collect a 6.35 percent sales tax, he said.

The only alternatives for coin-operated car wash owners, Whitehouse added, are to raise the price enough so that the increase plus the resulting tax hike add up to a round number, or to keep prices fixed and pay the sales tax out of existing profits.

Stamford attorney Daniel Johnson, whose focus is estate planning and administration, called an increase in the fee schedule tied to the estate tax as a “last straw” for some clients who’ve decided to leave Connecticut to avoid its taxes.

The criticism sparked a strong response from some members of the Malloy administration and from the legislature’s Democratic majority.

State Tax Panel Co-chairs William Dyson, left, and William Nickerson preside at Wednesday's hearing.

Keith M. Phaneuf / CTMirror.org

State Tax Panel Co-chairs William Dyson, left, and William Nickerson preside at Wednesday’s hearing.

After Whitehouse objected to the imposition of sales taxes on coin-operated car washes, panel member Kevin Sullivan, the commissioner of the Department of Revenue Services, noted that the sales tax is imposed on non-coin-operated car washes as well.

Similarly, Sullivan and Rep. Jeffrey Berger, D-Waterbury, said that before the latest tax changes, the state’s hospital provider tax extended to receipts from ambulatory service centers owned by hospitals. The new budget now ensures that independently owned centers are taxed as well.

“So we were able to find a small fix,” said Berger, who serves on the study panel and also co-chairs the legislature’s tax-writing finance committee.

And both Sullivan and Malloy’s budget director, Benjamin Barnes, objected when former Rep. Carl Schiessl, now director of regulatory advocacy for the Connecticut Hospital Association, argued several recent hikes in the hospital tax are costing the industry jobs and weakening health care.

“Hospitals are truly stakeholder institutions in Connecticut,” Schiessl said, adding that unlike other corporations, hospitals are licensed and therefore can’t move to other states.

Connecticut hospitals have shed 530 jobs since the last increase in the hospital tax was enacted in late June, he said.

But Barnes fired back that hospitals operating gains approached $500 million in the 2014 fiscal year, and posited that the facilities’ aggregate profits would approach $750 million per year if the latest tax hikes were rolled back.

“What would they spend it on?” Barnes asked Schiessl.

“Have hospitals ever considered a voluntary cap on executive compensation?” Sullivan added.

Schiessl responded that hospitals need a healthy operating margin to invest in new equipment, open new clinics and attract the best medical experts and administrators.

There were some groups that offered suggestions more in line with the panel’s charge to develop broad-ranging, revenue-neutral reforms to network of state and municipal taxes.

Capitol Region Council of Governments Executive Director Lyle Wray said Connecticut could ease local property tax burdens considerably – and increase burdens on state taxpayers – by shifting full responsibility for funding elementary and secondary school education onto the state budget.

The property tax generally is recognized as one of the most regressive taxes in the state, falling disproportionately hard on low- and middle-income households.

“To get the biggest bang for the buck, target relief to those who most need it,” Wray said.

The Connecticut Business and Industry Association’s tax specialist, Bonnie Stewart, argued against the idea of eliminating many business credits as a means of funding a reduction in the overall corporation tax rate.

Many existing credits are conditioned upon businesses growing or otherwise expanding activities in the state. “They are an anchor” to keep business in Connecticut, she said.

And Connecticut Voices for Children Executive Director Ellen Shemitz noted state government currently has no mandate to periodically review the effectiveness of more than $7.1 billion in tax breaks currently on the books.

This total reflects credits, exemptions and other breaks included within the income, sales, corporation and other taxes.

Shemitz added that business tax breaks in particular traditionally are never reviewed to determine whether they had a positive impact on the state’s economy.

“There is no reason the corporations should have some special status,” she said, “that they retain (these credits) ad infinitum without review.”

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