A revised budget unveiled Wednesday by Democratic legislative leaders and Gov. Dannel P. Malloy restores an array of popular middle-class sales tax exemptions, while increasing inheritance taxes and a levy on expensive cars, boats and jewelry.
The revisions, which would trim Malloy’s $1.5 billion tax increase by $116 million and make modest shifts in spending, will be approved Thursday by the legislature’s Finance and Appropriations committees, leaders said. The Senate may vote on the budget as soon as next week.
Haircuts will remain tax exempt, along with automobile trade-ins, car washes, and boat repairs and storage. And the deal abandons Malloy’s proposal to eliminate an annual sales-tax free week, which costs the treasury $4.2 million. But the exemption on clothing under $50 will disappear.
“The revenue increases have been modified to help preserve jobs and protect families struggling in these tough times,” said Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn. “Make no mistake, there is still much work to be done. This is not the end of the budget process. But it is a giant step forward.”
The tax revisions eliminate some of Malloy’s proposals that raised relatively little revenue, while generating an outsized political outcry heard by legislators and Malloy. Restoring the exemption on clothing under $50 would have cost about $130 million, too much to make up elsewhere.
The two biggest sales-tax changes roll back Malloy’s plan to tax items bought with coupons or discounts at their original value and to tax the value of automobile trade-ins. Those levies would have raised $45 million and $40 million respectively.
To partly offset those tax cuts, Malloy acceded to the wishes of liberal Democratic legislators, particularly those in the House, to land more heavily on the wealthy. Revenue from the luxury tax he proposed would jump nearly tenfold, from $1.2 million to $11 million.
The luxury tax on clothing costing more than $1,000, jewelry above $5,000, cars aboive $50,000 and boats above $100,000 would jump from 3 percent to 7 percent. Instead of being applied only to the portion of the price above those threshold amounts, it would apply to the entire purchase.
So, the tax on a $100,000 car would be $7,000, instead of $1,500 under Malloy’s original plan.
The inheritance tax would apply to estates of more than $2 million. Under the original plan, the first $3.5 million would be exempt. The deal also would raise $9 million by the so-called “Amazon Tax” on online purchases.
“It asks more of our wealthiest residents who can afford it. It softens the tax burden on the middle class, while maintain funding for schools, cities and towns, and protects our most vulnerable citizens,” said House Speaker Christopher G. Donovan, D-Meriden. “This is a fair, responsible budget that will move Connecticut forward.”
But the compromise also relies more heavily on a tax on electric generators. Malloy proposed a tax of 0.2 cents per kilowatt hour, raising $58.4 million; the revised budget calls for a tax of 0.25 cents, raising $72 million.
Malloy joined Donovan, Williams and other legislative leaders at a lectern in the ornate Old Judiciary Room of the State Capitol to mark an early agreement on a difficult budget that lacks one final piece: It relies on $1 billion in labor savings still being negotiated.
“Today is not a day of celebration,” Malloy said. “What we are asking the people of Connecticut to do is to agree with us to make shared sacrifice in the hopes and expectations that in doing so we will find a better Connecticut sooner rather than later.”
Despite Malloy’s insistence it was no day to celebrate, the press event had a celebratory air that may yet prove premature. Malloy offered no update on concession talks, no assurance he would not yet have to find savings through layoffs and other cuts.
The governor and leaders heaped praise on each other, the leaders saying Malloy proposed an honest budget framework in February that the legislature is refining to achieve Malloy’s stated goal of erasing a $3.2 billion deficit through “shared sacrifice.”
“Gov. Malloy deserves much credit for proposing a courageous and honest and balanced budget in February,” Williams said. “As a result this budget agreement today has no borrowing, no gimmicks, no one-time revenues.”
Donovan, who was described by other legislators as pushing for a more progressive tax structure, said, “I want to thank Gov. Malloy for putting forward a responsible, honest budget.”
Malloy referred to Donovan as his friend and prompted him at one point to explain the details of the luxury tax.
Larry Dorman, a spokesman for the coalition of state employee unions, said the unions saw the revised budget as an improvement.
“We are pleased to see that the budget has seen some improvements, such as asking the very rich to pay more of their share, as opposed to ideas like eliminating the property tax credit that further hurt struggling working and middle class families,” Dorman said. “We would still like to see much more asked from big multi-state businesses and the very rich who have so far been the only ones to share in our state’s so-called economic recovery.”
Republicans saw nothing to applaud.
“Democrats think they are doing residents a favor but no one should be comforted by the inevitable–a record tax increase on individuals and businesses that will add insult to misery,” said Republican State Chairman Chris Healy.
The leaders of the Republican minority, Rep. Lawrence F. Cafero Jr. of Norwalk and Sen. John P. McKinney of Fairfield, arrived as the Democrats were leaving to denounce the deal as still reliant on a tax increase that could be avoided.
“Gov. Malloy and the Democratic majority have let down the people of Connecticut,” McKinney said. “This massive and unnecessary tax hike flies in the face of the unanimous public outcry against unsustainable government spending and higher taxes.”
McKinney and Cafero emphasized that Connecticut was getting a budget that was product of the first Democratic governor in 20 years and a Democratic legislature.
“He wants one party government in the state of Connecticut,” McKinney said. “And here’s the point: he can do that, but now he owns it.”
Cafero said, “This is a one-party government.”