House Republicans have proposed $247 million in consumer and business tax cuts – moves they insist won’t worsen the big budget deficit projected for next year.
In a press conference Thursday, GOP lawmakers said they want to give small businesses a one-time break on their unemployment assessments, accelerate the return of a sales tax exemption on clothing and restore another exemption for over-the-counter medicine.
Republicans are worried that Gov. Dannel P. Malloy and his fellow Democrats in the legislature’s majority will use this year’s budget surplus to temporarily finance big election-year tax breaks. After that contest, officials would seek a permanent solution to maintain those tax breaks, such as raising other taxes or cutting programs.
It’s better, House Republicans said, to find a way to both provide – and sustain – those tax cuts now.
“Enacting this legislation will boost our economy, help businesses grow, but avoid larger budget holes in the future,” said House Minority Leader Lawrence F. Cafero, R-Norwalk. “This will provide relief for small business owners still struggling to make payrolls, and families trying to stretch household budgets.”
The proposed Republican cuts include:
· Using surplus to pay the remaining $60 million interest the state owes the federal government on a special unemployment insurance loan taken out during the last recession. The state has been placing special assessments on Connecticut’s businesses to cover those interest charges. Businesses already have paid $71 million.
· Using the surplus to speed up the return of the sales tax exemption on clothing and footwear costing less than $50 million to April 1 of this year. It already is scheduled to return on June 1, 2015. The one-time cost of this 14-month acceleration is about $168 million.
· Restoring the sales tax exemption on non-prescription drugs starting April 1, 2014. This would cost $5 million to cover the last three months of the 2013-14 fiscal year, and then $17 million per year after that. The GOP plan would pay for it largely by canceling the plan to increase a state income tax credit for working poor families in two stages by 2016.
“We leave a substantial amount” of the projected surplus “without creating a structural hole” in the future, Cafero said.
Minority Republicans in the Senate were absent from Thursday’s press conference, but Senate Minority Leader John P. McKinney, R-Fairfield, issued a statement backing the House GOP proposal.
“Three years ago, Governor Malloy’s budget imposed the largest tax increase in state history and, not surprisingly, his plan has not delivered the economic benefit he predicted,” McKinney wrote. “In this upcoming legislative session, we need to change course. We need to look for ways to cut taxes and reduce spending to address our out-year deficits. I support these proposed tax cuts which provide needed help to Connecticut taxpayers, especially seniors, small businesses and the middle class.”
Malloy was coy earlier this week when asked by reporters what he might propose in his next budget plan, which is due to the legislature in two weeks.
“We can’t be all things to all people,” he said. “So that means we have to pick and choose where we invest. I’ll invest in working families every day I get the chance. I’ll invest in educational achievement when I have the opportunity to do that.”
For the first time since he took office in January 2011, Malloy has a large fiscal cushion he can tout.
There is about $271 million in the emergency budget reserve, commonly known as the Rainy Day Fund.
The administration is also projecting a $506 million surplus for this fiscal year, which ends June 30. And improving forecasts for state tax receipts could boost the projected surplus for 2014-15 over $160 million.
All totaled Malloy and the legislature could have more than $930 million in reserves and projected surpluses to work with this session.
“Two days ago, Republicans were denying we had a surplus,” Malloy spokesman Andrew Doba said Thursday. “Today, they’re laying out plans on how to spend it. At least they’re finally acknowledging that after making some hard choices, Connecticut’s budget is in much better shape than it was three years ago. The governor will have more to say about his own proposals in the days ahead.”
But that cushion is controversial. The administration and legislature also have used about $1 billion in borrowing and related actions to bolster recent budgets or to push expenses off until after the 2014 elections.
The legislature’s nonpartisan Office of Fiscal Analysis said in November that a $1.1 billion deficit is built into the first budget Malloy or his successor must present to the legislature in February 2015. And even with improved revenue forecasts released last week, that potential shortfall is about $940 million.
So if new tax cuts or spending are provided now, and paid for with a limited surplus, they also increase the deficit that eventually must be addressed after the election.
House Speaker J. Brendan Sharkey, D-Hamden, was cautious Thursday about plans to spend the surplus at this time.
“As I’ve been saying, first and foremost we need to focus on long term debt reduction to help protect future generations of taxpayers, in particular bonds used to help offset recent deficits,” Sharkey wrote in a statement. “We shouldn’t be making promises and throwing out short term feel good ideas until we have a firmer grasp of our financial outlook going forward.”