Malloy’s ‘no tax increase’ budget sparks ideas to raise revenue
Having vowed not to raise taxes, Gov. Dannel P. Malloy still used every trick in the book to find an extra half-a-billion dollars to spend next year.
But it isn’t just Republican legislators who are less than enamored of the governor’s gimmicks. Malloy’s fellow Democrats are proposing their own tax hikes, and they’re not shy about saying that’s exactly what they are.
Leery of the governor’s plans to raid special programs, grant amnesty to tax delinquents, sell the right to serve electricity customers, borrow to save on town aid and cut tax relief to the poor, Democratic lawmakers are proposing increases in income, estate, corporation, sales and cigarette taxes.
Rich vs. poor
“We will, I think, need some additional revenues to have a balanced budget, and I’ve always believed we should have more progressivity in our income tax,” said Senate Majority Leader Martin M. Looney, D-New Haven.
Looney, who represents one of the state’s poorest cities, has proposed boosting the income tax’s top marginal rate from 6.7 to 6.9 percent. That would apply to earnings above $250,000 for individuals and above $500,000 for couples.
Malloy has stressed the need to keep the top rate below those of New York (8.8 percent) and New Jersey (9.0 percent), arguing that Connecticut must not punish success if it’s to keep high income households in the Nutmeg State.
Better Choices for Connecticut, a coalition of four dozen public- and private-sector unions and social service advocacy groups, is urging Malloy to seek an extra $835 million from taxpayers, with nearly half of that coming from two new top rates on the state income tax.
Malloy’s only income tax proposal does the exact opposite.
His plan would reduce the new state Earned Income Tax Credit from 30 percent to 25 percent of the federal EITC, a move that would reduce assistance to some of Connecticut’s poorest working families by $21 million next fiscal year.
The administration has defended the cut by noting that it still ranks as one of the most generous state credits in the nation.
Opponents counter that families that receive the credit use the money to pay energy costs, car repairs, groceries or other basic needs.
Seeking more from big corporations
Rep. Mae Flexer, D-Killingly, appreciated the governor’s leadership that ensured municipal aid not only was preserved — but modestly grew — over the last two years as a huge deficit created in the last recession was closed.
But northeastern Connecticut comprises largely blue-collar towns with high unemployment rates, and Flexer said she’s concerned that Malloy’s new budget reduces the towns’ share of state tax and casino revenues, and replaces some of that with bonding. And while the governor would save municipal property taxpayers more than $500 million next fiscal year by exempting most taxes on motor vehicles, he proposes no way to replace that lost revenue.
With fiscal analysts projecting a 6 percent gap, about $1.2 billion, in next year’s finances based on current trends, Malloy was hard pressed to avoid tax hikes, and is seeking more from businesses.
But Malloy argues the $139 million extra from the corporation, electricity generation and insurance premiums taxes comes only from extending existing rates or credit limits otherwise set to expire — and therefore doesn’t count as a tax hike.
“I think he had to look at every option to deal with a difficult situation,” said Flexer. “But now it is our responsibility to do the same.”
Flexer is one of several lawmakers who has proposed a “combined reporting” measure to ensure that Connecticut corporations pay more in taxes.
The “combined reporting” concept holds that any corporate group with at least one affiliate here should owe taxes that reflect the entire group’s net income.
Advocates contend that Connecticut is otherwise vulnerable to aggressive big corporate planning that hides earnings in affiliates in low-tax states or other countries. The legislature’s nonpartisan Office of Fiscal Analysis estimated three years ago that Connecticut would gain $88 million annually under a combined reporting system.
Estate, cigarette and hoarders’ taxes
Rep. Betsy Ritter, a Waterford Democrat, not only has sponsored a “combined reporting” bill, but she has also proposed a hoarder’s tax. This would place a levy on liquid assets — companies with a lot of money in the bank — and dedicate the proceeds to job creation programs.
Ritter, whose district includes the state’s two nuclear power plants at Millstone Point, is one of a dozen lawmakers who contend that Malloy’s plans to extend the electricity generation tax could cost southeastern Connecticut hundreds of jobs.
While Malloy has said repeatedly this is not the time to raise taxes, that line already has been crossed, Ritter said.
“It sounds to me like the legislature is respectfully saying (tax increases) are something we have to have on the table to have a balanced discussion about the budget,” she said.
Other proposals offered recently would repeal a 2009 tax cut on wealthy estates, increase sales tax on food served at restaurants, add 95 cents per pack to the cigarette tax and preserve the towns’ share of state sales and real estate conveyance taxes — worth just under $100 million per year.
“While we will read and comment on many legislative proposals over the course of the session, it is premature to react at this early stage,” Gian-Carl Casa, spokesman for the administration’s budget office, said. “The governor’s position on tax policy has been made abundantly clear.”
Rep. Patricia Widlitz, D-Guilford, co-chairwoman of the tax-writing Finance, Revenue and Bonding Committee, has said that any tax talk just two years after a record-setting $1.5 billion state tax increase should be as “a last resort.”
But Widlitz also said last week that it’s clear some Democratic lawmakers want to debate raising taxes.
The finance committee did raise a concept bill — a measure with a title, but no specific language drafted to date — regarding the real estate conveyance tax. Such measures typically are drafted in anticipation that members may discuss the topic during the legislative session.
But Widlitz said she thinks the litmus test for any tax legislation — whether it raises or reduces revenue — will hinge on job creation. “What kind of tax structure can we promote, what can we do to strengthen the economy, to make Connecticut more attractive to business?” she said.
Gimmicks raise taxpayers’ ire
And it’s not just tax increases that are up for discussion.
The finance committee raised another concept bill that would cancel a major scheduled increase in the state’s wholesale fuel tax. That hike, already set by law to take effect July 1, would boost the price of gasoline by about 4 cents per gallon based on current wholesale prices.
Rep. Sean Williams of Watertown, ranking GOP representative on the finance committee, said he doesn’t think Democrats will find the spending cuts needed to support tax hikes and said he fears it will be hard enough to eliminate the other revenue gimmicks in the budget. “There is never enough money for these folks to spend.”
Former East Hartford Mayor Susan Kniep, who heads a coalition of more than two dozen community-based taxpayer groups, predicted most taxpayers wouldn’t warm to Malloy’s plan to offer the state’s fifth tax amnesty program in 13 years.
These plans raise revenue by temporarily waiving interest and/or penalties, encouraging tax delinquents to pay. Malloy’s budget would raise $25 million next fiscal year through an amnesty plan.
“Every time you give someone a break, the rest of us behind them are picking up the taxes they owe,” Kniep said, adding that the frequency of these amnesty programs only encourages tax delinquents to hold out for the next one.
The state also offered such programs in 2009, 2002, 1995 and 1990, according to the Department of Revenue Services.
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