Gov. Dannel P. Malloy announced Tuesday he would propose reducing the state’s insurance premium tax by one-seventh in his new budget next week, a move that would save insurance companies $11 million in 2017-18.
The change, which also would cost the state a projected $22 million by 2018-19, would not have a substantial impact on the projected deficits in the next two-year budget.
Nonpartisan analysts say state finances, unless adjusted, are on pace to run $1.42 billion in deficit in 2017-18 and $1.6 billion in the red in the following fiscal year.
By reducing the rate from 1.75 to 1.5 percent, the governor said, it would bolster ongoing efforts to improve an insurance industry that employs more than 58,000 people statewide.
“There are simple and relatively inexpensive ways we can improve the business climate by making state government more predictable and sustainable,” Malloy said. “The insurance industry has a long and storied history in Connecticut, and we must ensure that we maintain our competitive edge so that they continue to thrive and grow in our state.”
Connecticut’s insurance premium tax is expected to yield $239 million this fiscal year.
The administration noted that 49 states and the District of Columbia have insurance premium taxes with rates ranging from 0.5 percent to 4.35 percent.
“Restructuring and lowering the premium tax will substantially improve market conditions for Connecticut-based insurance companies,” the governor added.
The insurance industry was supposed to receive a tax break of similar value two years ago.
Malloy and the legislature had approved a measure during his first term to remove two tiers of caps on credits companies could claim against the insurance premium tax. This was expected to save companies $18.7 million per year beginning in July 2015.
But the governor and legislature delayed that move in June 2015, before it could be implemented, to help close a major shortfall in state finances.