State income tax hike hits paychecks starting this week

Depending on how much they earn, Connecticut workers could start noticing less in their paychecks at week’s end as state government starts collecting at special income tax rates to reflect new increases – and to apply them retroactively back to Jan. 1.

But while Gov. Dannel P. Malloy and his fellow Democrats in the legislature’s majority predicted most residents would view those rate increases–which don’t impact singles earning less than $50,000 or couples below $100,000–as reasonable to close a massive budget deficit, Republicans said taxpayers would cry loudly and often.

The GOP also said the retroactive provision, which requires the tax department to collect 12 months’ worth of income tax increases between now and the calendar year’s end, already is being seen as a sign that state government still doesn’t have its fiscal house in order.

“For the vast majority of Connecticut citizens it will have little or no impact, and for the people that it will have an impact, a lot of them fall into wage and income bracket that I think they can handle it,” Malloy said Monday.

The governor said he doesn’t expect a huge outcry, noting that the public had ample warning. When Malloy took office in January, he inherited a built-in deficit for the 2011-12 fiscal year projected as high as $3.67 billion.

“People certainly had notice that it was coming,” he said, adding no one should be surprised about the retroactive provision either. “We tax on a calendar year and we budget on a fiscal year. No one really wants to do that but that’s how the two calendars interact.”

Because low- and low-to-moderate income working families face no rate increase, House Speaker Christopher G. Donovan, D-Meriden, predicted only those households earning more than $1 million might object loudly.

“But they are still making over $1 million,” he said, adding that low- and middle-income households still face increases in sales and other taxes, but that was part of a balanced plan to close a large deficit. “People understand that we’re asking everybody to sacrifice,” he said.

“Nobody likes tax increases but no one – including Republicans – could offer a real alternative,” Senate Democratic Caucus spokesman Derek Slap said. “Even Republican-led states like Texas and New Jersey raised taxes to help balance their budgets, (but) they did it by cutting municipal aid and forcing towns to raise property taxes and fees. Connecticut’s solution is fairer to middle-income families. Of course Connecticut’s budget also includes deep spending cuts and more than $1.5 billion in concessions from state employees – pending ratification. This balanced approach is the best option for our fragile economy.”

But Republican lawmakers warned voters don’t see a balanced approach to solving the state’s fiscal woes.

“Believe me, people know what’s in the offing” for their paychecks, Sen. Andrew W. Roraback of Goshen, ranking GOP senator on the Finance, Revenue and Bonding Committee, said Monday. “I will gladly forward the calls of my constituents to Speaker Donovan.”

“The feedback that I’m hearing from my constituents is absolute disgust,” said Deputy House Minority Leader Vincent J. Candelora, R-North Branford, who also serves on the tax-writing Finance committee. “People’s perception (about the retroactivity) is that we are going back in time to pluck out more revenue because the legislature and the governor failed to do their job.”

About two-thirds of the nearly $3.7 billion projected deficit was closed through tax and fee hikes and from other revenue growth. And though the remaining third was closed by spending less than the level needed to maintain current services, the bulk of that savings – about $700 million this fiscal year – would come from a concession deal yet to be ratified by state employee unions.

“We still need to reduce government to reflect” the struggling economy, Candelora added.

The president of a coalition of 30 community-based taxpayer groups warned that low- and middle-income households already are frustrated by the $1.5 billion tax and fee hike built into the new budget, even if their income tax rates don’t change. Susan Kniep is a former East Hartford mayor and current president of the Connecticut Federation of Taxpayer Organizations.

“The taxpayers in Connecticut are far more savvy than they have ever been,” Kniep said. “There’s a big, big concern here in the state of Connecticut because we increased taxes by $1.5 billion and the taxpayers take it all into account.”

Though income tax hikes accounted for nearly $900 million of that total, consumers are aware that the overall sales tax rate rose from 6 to 6.35 percent last month, and that numerous exemptions on goods and services were removed, Kniep said.

The legislature and governor also raised taxes on cigarettes, alcohol, diesel fuel, and electricity generation.

And though the income tax rate hikes are aimed at singles earning more than $50,000 and couples earning more than $100,000, the legislature also reduced a popular property tax credit – which many middle-income households enjoy – from $500 to $300. Taxpayers care about a $200 income tax increase, she said, regardless of whether it is taken gradually through paycheck withholding, or all at once when they file their income tax returns next spring.

“We know we are going to feel the pain,” she said.