Big business speaks loudly, rattles fragile tax deal
A vote on the tax deal struck over the weekend was delayed Monday as legislative leaders sought revisions demanded by rebellious members, some in response to an outcry by major corporations over a tripling of a computer-services levy and an increase in other business and income taxes.
By 11 p.m. it was clear that a vote in the House would be postponed until Tuesday as House Speaker J. Brendan Sharkey, D-Hamden, acknowledged having to make significant revisions that he declined to specify.
With press releases threatening to send jobs elsewhere, and in quieter one-on-one conversations with potentially sympathetic lawmakers, corporate giants like General Electric and Aetna made a late push to shake votes away from the fragile tax deal struck over the weekend.
Early Monday evening, Rep. Cristin McCarthy Vahey, D-Fairfield, a freshman, found herself surrounded outside the House chamber by two lobbyists and a tax attorney dispatched by her town’s biggest company, General Electric.
“It’s late in the game to be having this conversation and certainly it’s a bit of a surprise to see the GE press release today. In part, that’s what I said to them,” said McCarthy Vahey, a former social worker facing the first tax vote of her career.
But McCarthy Vahey, a member of a Democratic caucus that cannot afford to lose more than a dozen of its 87 members and still pass a budget, remained publicly uncommitted regarding the deal her leaders made minutes before midnight Saturday with the administration of Gov. Dannel P. Malloy.
Shaking on a deal Saturday was one thing, but selling it Monday to the Democratic rank and file proved to be another, as more than a dozen representatives balked at various elements, indefinitely delaying the start of the budget debate.
One of the provisions would triple a state tax on data-processing services from one percent to three percent, a multi-million dollar hit to a health insurer like Aetna, which increasingly sees itself as a data company.
“Connecticut is in danger of damaging its economic future by failing to address its budget obligation in a responsible way,” Aetna said, decrying the business taxes. “Such an action will result in Aetna looking to reconsider the viability of continuing major operations in the state.”
GE delivered a similar threat earlier, saying that the prospect of more than $700 million in higher business taxes over the next biennium “makes businesses, including our own, and citizens seriously consider whether it makes any sense to continue to be located in this state.”
Business leaders called the threats extraordinary.
“If that doesn’t shake the building up and get people to change their thinking on this budget and tax proposal, I don’t know what will,” said Joe Brennan, the president of the Connecticut Business and Industry Association.
“If businesses like Aetna and GE leave, there is no going back,” said House Minority Leader Themis Klarides, R-Derby. “This can’t be fixed overnight.”
Travelers also issued a statement that criticized the tax deal without threatening to move operations.
Rep. Kevin Ryan, D-Montville, who considers Computer Science Corporation, a computer services company, to be an important employer in his and other eastern Connecticut districts, said the leadership had agreed to change the data-processing tax. He described the discussion as in flux.
“We’ve made some progress, and we hope to make more progress,” Ryan said Monday night.
Other legislators objected to a reduction in a property tax credit that allows taxpayers to lower their state income tax liability.
As leaders responded to one problem in the tax package, they risked causing new ones. Before it was clear that House leaders needed to change the computer tax, Senate President Martin M. Looney, D-New Haven, said lowering the levy would be challenging.
“If it were to be changed, it would have to be replaced by revenue from another source that might be equally painful to some,” Looney said.
Legislative leaders defended the tax package’s impact on business, noting that a plan reported to the floor a month ago by the Finance, Revenue and Bonding Committee would have applied the 6.35 percent sales tax to a broad array of services, including data processing.
To legislators, the tax deal struck Saturday night represented an improvement over the finance committee version.
“The data processing tax has been mitigated, cut in half,” Looney said, referring to the finance plan.
Business saw no mitigation, only a tripling of an existing 1 percent tax.
Sharkey and Looney each expressed surprise at the timing of the corporate outcry.
“Those have been out there since the finance committee proposal came out,” Looney said.
“We’re trying to find the right balance on these things. We’re trying to avoid hitting any individual industry too hard, which is why we eliminated all the other sales tax proposals on services that had been in the finance package,” Sharkey said.
Sharkey said the budget makes a major investment in transportation infrastructure, one of the business community’s major priorities.
“That costs money,” he said.
Earlier in the day, Sharkey also seemed disinclined to make major changes.
“The threats and the hyperbole from the business community is something we’ve heard since February, since the governor first put his budget in place,” Sharkey said.
Sharkey said late Monday night he believed the revisions being drafted by legislative lawyers would be sufficient to win passage. But a final head count would have to wait until lawmakers return on Tuesday, when Sharkey planned to present the changes in caucus.
“So much time has passed, obviously people need to see the budget, need to see the language, need to see the town runs,” he said, referring to a town-by-town list of how municipal aid would be distributed. “Then we need to go over it one last time.”
A combined tax-and-spending plan for the biennium beginning July 1 would be presented to legislators in one bill, which would start in the House and then go to the Senate.
The legislature faces a constitutional adjournment deadline of midnight Wednesday.
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