More than half of House of Representatives’ Democratic majority sent Gov. Ned Lamont a clear message Thursday: they want a tax hike on the rich in the next state budget.
The 56 representatives who signed a letter to the governor could push the budget debate into gridlock as the 2019 session nears its June 5 adjournment.
“Our state relies heavily on regressive sales and property taxes while employing a moderately progressive income tax,” wrote 56 House Democrats and seven Democratic senators.
Maribel La Luz, the governor’s spokeswoman, said Lamont is committed to closing the multi-billion dollar budget deficit he inherited while minimizing tax burdens on all households.
“The governor doesn’t want to raise the income tax on anyone within any income bracket and has repeated this over and over,” she said.”
Connecticut taxes income at a variety of rates ranging from 3 to 6.9 percent until an individual earns more than $500,000 and a couple tops $1 million. For those at the top of the scale, all income is taxed at 6.99 percent.
Because of the rate system coupled with credits and exemptions, most households earning less than $40,000 — if they include children — have little to no tax liability.
But while Connecticut’s income tax generally is recognized as progressive when it comes to poor working families, critics say the rate on wealthy taxpayers is not far above those on many middle-income households.
And given that the state also relies heavily on property taxes to fund municipal government, studies have shown the poor and middle class households pay a greater share of their earnings to cover their combined state-local tax bill than wealthy taxpayers do.
“This structure soaks the middle class, taking over 12 percent of their income in state and local taxes,” the letter states.
Sources say the Lamont administration, which has been in closed-door negotiations with Democratic legislative leaders on the next state budget, consistently has rejected a plan to tax the rich offered by one legislative panel.
The Finance Revenue and Bonding Committee recommended adding a 2-percentage-point surcharge onto the top income tax rate — but only on capital gains earnings.
This would raise a projected $262 million per year.
A caucus of progressive House Democrats teamed with labor and religious groups last week to offer three revenue proposals at their “Fair & Just Budget Rally.”
Besides the capital gains surcharge, they also suggested raising the top marginal rate on all earnings above $500,000. A third option involved a one-mill, statewide property tax on houses valued at more than $1 million, the so-called “mansion tax.”
Rep. Anne Hughes, D-Easton, co-chairwoman of the progressive caucus, insisted the letter she co-signed is not an attack on Connecticut’s wealthy, but rather an acknowledgement that too many households are falling behind in this state.
“The cost of a well-functioning, equitable society is higher here,” she said.
Though the letter invites Lamont to embrace a capital gains surcharge, Rep. Josh Elliott, D-Hamden, who also serves on the progressive caucus and signed the letter, said leaders should not to underestimate the resolve of lawmakers who want a more progressive tax system.
“If the capital gains tax is not in that final package, then all we are doing is taxing the middle class to death in this state,” he said, adding that no one wants a repeat of the 2017 budget debate.
That exercise stretched on for 10 months and Elliott noted that many tentative budget concepts never passed muster with rank-and-file lawmakers. “We basically had to come back and start over again and again,” he said.
There are 91 Democrats and 60 Republicans in the House, and GOP lawmakers all are expected to oppose the budget because it almost certainly will contain tax increases of some kind.
That means — if all representatives vote — it would take 76 Democratic votes to pass a budget in the House. Seven of the 22 Democrats in the Senate also signed the letter.
Lamont also has said that taxing investment earnings of the rich would drive the wealthy from Connecticut and weaken its economy.
The governor has said all along since his budget address that he’s open to any idea as long as the numbers add up, there’s no borrowing from the future and he remains consistent in his opposition to increasing the capital gains rate on Connecticut’s residents,” La Luz added. “In order to create a more economically competitive and pro-growth environment, we need to consider that we are competing with every state around us. We need a tax policy that does not encourage further out-migration, limits our ability to expand economic opportunity into the next decade and generation, and does not increase our reliance on volatile revenue sources.”
The Democratic governor campaigned on a pledge not to raise income tax rates. He avoided that option in February when he proposed his budget, even though state finances were projected to run about $3.7 billion in deficit — unless adjusted — over the next two fiscal years combined.
Some legislators balked at the governor’s revenue package, saying it was too regressive. Hundreds of millions of dollars would be raised by canceling dozens of sales tax exemptions. A new tax would be imposed on sugary beverages and municipalities would be forced to contribute to the teachers’ pension fund.
House Majority Leader Matt Ritter, D-Hartford, said the letter simply is part of the legislative process.
“I think it’s what we do in this place,” he said. “We communicate our feelings.”
Ritter added he’s confident House Democrats will weigh all aspects of any tentative budget deal presented by leaders, and not just the presence or absence of one specific tax proposal. “Our caucus will review the entirety of the budget and make their vote based on the totality of the package,” he said.