Gov. M. Jodi Rell today vetoed a Senate Democratic “jobs” bill that would have imposed a special tax on executive bonuses at eight Connecticut companies that received aid from the federal Troubled Asset Relief Program.
“Many legal experts have warned that this legislation would certainly be challenged as exactly that,” Rell said in her veto message. “Even if the TARP tax were to survive such a legal challenge, the court case would be long and expensive, adding to the burden on Connecticut’s already hard-pressed budget,”
No override attempt is likely, as it was passed with less than the two-thirds majority necessary to overcome a veto.
Critics, including Republicans and some in the business community, say the tax would illegally single out employees of certain firms, and violates due process by applying a tax retroactively.
Attorney General Richard Blumenthal released an opinion in March, saying the tax is “likely constitutional” because it is within the state’s taxing authority and the U.S. Supreme Court has repeatedly upheld retroactive taxes.
Senate President Donald E. Williams Jr., D-Brooklyn, said he is “disappointed” in the veto.
“This initiative would have offered help where it is needed most. Our plan to compensate for the tax cut by implementing a temporary surcharge on large Wall Street bank bonuses was fair and legally sound. Unfortunately Republicans have been determined to protect these Wall Street bonuses – their legal argument is simply a smokescreen,” he said in an emailed statement.
The price tag of the bill, prepared by the legislature’s Office of Fiscal Analysis, also diminished support.
The bill would have exempted 48,000 small businesses in the state from paying the $250 annual business entity tax, costing the state $24 million over two years.
To pay for the tax break, Democrats originally estimated $30 million in revenue could be generated from a proposed new tax on bonuses in excess of $1 million paid to executives working at the eight state firms that received federal bailout money.
But OFA reported that the new tax would generate just $7.5 million through June 2011 since fewer than 100 employees would be eligible for the tax. The residents who commute to New York would escape the tax because they pay tax on income earned to that state. To generate more revenue, Democrats rewrote the bill to tax bonuses of $500,000 or more, but OFA was unable to determine how much more revenue that would generate.
“However well-intentioned, I cannot sign into law a bill that creates an instant budget deficit,” Rell said.
Several proposals have been made in Congress to tax these bonuses with no success, and the Congressional Research Service said the tax is vulnerable to being found unconstitutional for a number of reasons. However, Connecticut’s 3 percent proposed tax may have not be considered punitive, compared to the 90 percent tax proposals on these bonuses in Congress.