Members of a key legislative panel will be asked Wednesday to approve a plan that bolsters tax receipts by almost $1.8 billion in the next two year budget, including $540 million in new income taxes on the wealthy and an overhaul of the sales tax.

The package to be presented to majority Democrats on the Finance, Revenue and Bonding Committee would boost taxes almost $1.3 billion over the next two years, according to a listing of proposals obtained by The Mirror. It also would cancel or postpone nearly $500 million in tax breaks approved in the last term but scheduled to begin in the next two-year budget. These involve the working poor, corporations and insurance companies.

The plan, was scheduled to be discussed in a closed-door Democratic caucus starting at 11 a.m. If supported by members, it is expected to be presented to the full committee for action later Wednesday.

Other components of that revenue plan, which likely will be revised during final negotiations with Gov. Dannel P. Malloy’s administration, include: more than $350 million in tax increases on corporations; a further tax hike on hospitals, but less than the increase Malloy has sought; and a provision to allow keno gambling in Connecticut bars and restaurants.

The single-largest net tax hike under consideration involves the income tax and what would amount to the fourth increase in this tax since its enactment in 1991.

This one would be centered entirely on wealthy households in two ways:

  • Raising the top marginal rate from 6.7 percent to 6.99 percent.
  • Establishing a 2 percent surcharge on capital gains income for individuals earning more than $500,000 per year and couples topping $800,000.

A second major change to be discussed with finance committee members Wednesday involves broadening the sales tax considerably.

The tax would be applied to a wide range of services currently exempted. Among those are data processing services used by businesses, something the Connecticut Business and Industry Association warned repeatedly this spring would weaken the job growth projected for the state this year.

But while these sales tax changes would raise an extra $1.1 billion over the biennium, the plan offsets much of that by reducing the sales tax, in two stages, from its current rate of 6.35 percent to 5.35.

Businesses also could be smarting because committee members will be asked to support a new tax increase on corporations of $350 million over the next two fiscal years. New restrictions on credits and other rule changes that would raise revenue would be modestly offset by a reduction in the business entity tax, a registration fee paid by companies.

Hospitals also would face a tax hike under the plan being presented to committee members.

Malloy sought to boost hospital taxes almost $340 million over the next two years, and all of that increase would be returned in payments to the hospital industry to qualify for more federal health care funding. The governor and legislature employed a similar strategy in 2011 and then deviated from it.

They established a $350 million-per-year hospital tax in 2011 and used it to help support $400 million in annual payments to hospitals — for one year. Those payments were gradually reduced annually thereafter, and hospitals this year will get $96 million back after paying $350 million in taxes.

The proposal before the finance committee would raise $272 million in new taxes from hospitals, but also would return those funds to the industry.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

Leave a comment