Gov. Dannel P. Malloy defended his plan Monday to seek an extra $22 million in revenue from businesses and power plants to help close the current budget deficit, arguing this doesn’t break his pledge not to raise taxes.
“We never said that we wouldn’t look at revenue,” Malloy told Capitol reporters following the State Bond Commission meeting in the Legislative Office Building.
Malloy unveiled an outline Friday of his proposal to the General Assembly to wipe $243 million in red ink off the state’s books this year.
Though details were limited, the “road map” — as referred to by the administration — called for $220 million in spending cuts and $22.6 million in new revenue.
Two proposals to raise more revenue focus on taxes, specifically:
- Scaling back the total value of credits businesses can use to reduce their corporation tax liability.
- Closing what the administration calls a “loophole” in the new tax on electricity generation.
And though neither proposal technically changes a tax rate, both would cause businesses to pay more taxes.
The administration estimates the corporation tax change would raise an estimated $12 million in the final six months of this fiscal year, which ends June 30; while the electricity generation tax proposal would bring in an extra $10 million over that period.
So are these tax hikes?
“We are looking for a time at limiting the percentage of tax avoidance” companies can claim on the corporation tax, Malloy said. “That’s not a tax increase.”
Similarly, the governor said closing an unintended loophole in the levy on power plants shouldn’t be called a tax hike either.
The governor’s budget chief, Office of Policy and Management Secretary Benjamin Barnes, said Friday that the electricity generation tax change is a fairness issue. “Some companies have restructured to avoid paying the tax,” assigning their generation and energy marketing functions to separate affilliates. “There’s no reason for that.”
Malloy has insisted repeatedly over the past month that he would not seek an increase in taxes to balance the current budget.
Malloy’s proposal, if backed by the legislature in a special session scheduled for Dec. 19, would be enough to close out the smaller figure. That’s because the governor used his limited, emergency authority last month to reduce the budget unilaterally, achieving $123 million in savings.
The Democratic governor has been reaching out to legislative leaders from both parties over the past week.
“I’m hopeful we can reach a bipartisan compromise” on deficit mitigation, he said Monday. “I hope that all parties can come to the table with an open mind.”
But Malloy may have hit a stumbling block with his tax proposals, given the response from the two Republican leaders on the tax-writing Finance, Revenue and Bonding Committee.
“They are absolutely tax increases,” Rep. Sean Williams, R-Watertown, said of the proposed changes to the corporation and electricity generation taxes. “There’s no question about it. … Only in Capitol-speak would one determine that’s not a tax increase.”
“The substance of securing revenue for government is generally referred to as taxation,” said Sen. Andrew W. Roraback, R-Goshen, who added that raising rates or otherwise changing the rules are different ways of achieving the same effect: raising more money from taxpayers. “I think it’s an exercise in semantics.”
Malloy also acknowledged he could face a tough road with his fellow Democrats in the House and Senate majorities.
The largest single-reduction proposed Friday involves $122 million aimed at the Department of Social Services, which administers a wide array of health care and other support services for the poor, aged and disabled, most of which are partially supported with federal aid.
That proposed $122 million cut is expected to save the state just $63.5 million since the reduction would trigger a $58 million loss in federal assistance.
The administration also is seeking cuts to the departments of: Public Health; Mental Health and Addiction Services; Developmental Services; and Children and Families.
“Many of those are going to be painful cuts,” he said, adding Connecticut, like many other states, is struggling with an economy that has recovered much more slowly than anticipated from the last recession. “Obviously everything is a balancing act.”