Malloy: No additional tax hikes, but burden could change

DANBURY — After the 16th of 17 scheduled town meetings on the budget, Gov. Dannel P. Malloy said Wednesday he’s not willing to increase his proposal of $1.5 billion in new taxes–but he might reconsider how the burden is shared.

Even if concession talks with state employees fail and Malloy has to find another $1 billion to balance the budget, it won’t come from taxes, Malloy said. His tax proposal of $1.5 billion is the outer limit.

“That’s what we’re talking about — no more,” he said.

But Malloy did not rule out acceding to a demand for a more progressive tax structure heard at most, if not, all of the meetings that have taken him to every community with a daily newspaper except Middletown, the site of his 17^th and last meeting next week.

“I’m willing to have a discussion along those lines,” Malloy said during a brief interview. “We’re taking a look. I’m certainly hearing what everybody’s saying.”

He declined to go into details about what a more progressive tax structure might look like. In fact, his first reaction was to jokingly protest, since his proposal already would increase progressivity by expanding the state’s tax brackets from three to eight.

“How many do they want?” Malloy said.

But then he acknowledged the consistent complaints he has received about how heavily his proposed income-tax increases would fall on the middle class. Those objections are under review, he said.

Malloy seemed resistant, however, to raising the top rate much, if at all, above the 6.7 percent. He repeated during Wednesday night’s the meeting that he is insistent that Connecticut be competitive with nearby states. New York has a top rate of 8.97 percent that will fall next year to 6.85 percent.

“I’m a big believer in benchmarking,” Malloy said.

But advocacy groups have been urging Malloy to also weigh fairness among Connecticut’s taxpayers.

A 2008 study by the Institute of Taxation and Economic Policy found the top 1 percent of Connecticut households, those earning more than $1.36 million, pay about 4.9 percent of their annual earnings to state income and sales and municipal property taxes after federal income tax deductions are taken into account.

By comparison, households earning between $75,000 and $302,000 pay between 8.5 and 9.6 percent.

In terms of total taxes paid, about half of the state’s roughly $6.7 billion in annual income tax receipts comes from households that earn more than $500,000. And though most income is taxed at 5 percent, Connecticut did add a new 6.5 percent rate in 2009 for earnings above $500,000 for individuals and $1 million for couples. That rate would jump to 6.7 percent under Malloy’s plan.

It was a relatively low-key evening for the governor, whose host was Mayor Mark Boughton, the running mate of Republican Tom Foley. But for the difference of half a percentage point, Boughton would have been lieutenant governor.

Boughton’s presence did not dissuade Malloy from scoring political points at Foley’s expense. He noted that his opponent had proposed $2 billion in spending cuts to erase a deficit of more than $3 billion.

Then he stood there and waited for his audience to get the joke: Foley never fully explained how he would have tackled the full deficit, estimated at between $3.2 billion and $3.67 billion.

Despite a series of steps taken over the past week to signal the stakes if concession talks fail, Malloy faced little pressure from union activists.

He was confronted again, however, by the disabled and their advocates over proposed cuts in programs and a consolidation plan that would fold an independent agency for the blind into a larger department.

And an older man, who described himself as living off Social Security and a military pension, urged Malloy to abandon his plan to eliminate a $500 property tax credit. A full restoration is unlikely, as that would add $365 million to the budget.

“We are absolutely learning some things,” Malloy said after the meeting. “I’ve always acknowledged the final package will be somewhat different than what the original proposal is, but the framework is not going to change.”