Gov. Dannel P. Malloy (right) and Department of Revenue Services Commissioner Kevin Sullivan. Keith M. Phaneuf / file photo
Gov. Dannel P. Malloy, righ,) and Department of Revenue Services Commissioner Kevin Sullivan. Keith M. Phaneuf / file photo

Gov. Dannel P. Malloy warned Thursday that sweeping federal tax changes under consideration on Capitol Hill would devastate both Connecticut’s and the nation’s economies.

“This bill is nothing short of an abomination, a scam and ill-wrought attempt to finally get a legislative win for the Trump administration, and nothing more,” Malloy said.

The U.S. House and Senate — both under Republican control — are trying to reach compromise on competing plans to overhaul the federal tax system.

The House bill shrinks the current tax brackets from seven to four, while the Senate plan would keep seven brackets but lower the rates on some of them. But one of the major changes proposed to deductions would eliminate a household’s ability to write off state tax payments on their federal income tax returns.

A second would prevent households from deducting more than $10,000 of their municipal property taxes.

“What is being sold as a tax cut will in fact be a tax hike for millions of Americans and, by some estimates, hundreds of thousands of Connecticut taxpayers,” the governor said.

As one of the wealthiest states per capita in the nation, Connecticut already pays far more in federal taxes than it receives in grants and other assistance from Washington, D.C.

Changes to deductions alone potentially would drain $9 billion from Connecticut, Malloy said.

“We are the top claimer of deductions for income tax and we are the second-top claimer in the nation for deductions on property tax,” state Department of Revenue Services Commissioner Kevin B. Sullivan said. “It’s going to hurt. It’s going to hit middle-income families hard.”

Congress also is considering changes to the federal health care law that would end coverage, according to some estimates, for as many as 13 million Americans and raise premiums for many others. And while Malloy didn’t offer estimates for how many Connecticut residents would be affected, he said the impact of those changes would be felt in this state as well.

The governor said the plan’s potential to drive down property values in wealthier states might pose an even greater risk to the economy.

Even a 10 percent decline in property values in California alone, the nation’s most populous state, could put the country at risk of slipping into recession, Malloy said.

And some economists say the plan also could drive down property values by 10 percent or more throughout the Northeast and the Pacific Northwest.

“That’s more than the definition of a recession,” Malloy said.

“It’s insanity,” the governor added. “This is bat — something — crazy.”

Malloy and Sullivan discussed the proposed federal tax changes Wednesday after announcing the latest state tax amnesty program, which was ordered in the new biennial state budget adopted in late October.

The amnesty program is projected to raise $85 million across this fiscal year and next combined.

“Not only will this program help individuals and businesses get back on track on their tax payments, but it will bring significant revenue back to our state, without raising taxes,” Malloy said. “This revenue will be especially helpful during this time of budgetary constraint, under which our state has learned to do more with less. I strongly urge all filers that are behind on their payments to take this opportunity to make a fresh start.”

The program would waive penalties and half of interest payments owed for approved participants. The program will consider amnesty for taxes owed as far back as three years ago.

The taxes included in the amnesty program, dubbed “CT Fresh Start,” are: income, business entity, sales, corporation and gift.

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Keith M. PhaneufState Budget Reporter

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.

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