Dems target wealthy in tax plan, including $1.4B ‘consumption tax’

Connecticut’s wealthiest would pay higher taxes on income and investments under legislation narrowly approved on Thursday to fund the two-year, $46 billion budget supported by majority Democrats in the General Assembly.

The tax hikes were at least a temporary victory for progressive Democrats who for years have wanted the rich to pay more. It would help fund a variety of new programs, including a $600-perchild tax credit and enhanced benefits for the state’s poorest families.

But four Democrats voted against it in the Finance Committee, and Republicans were solidly opposed in a 26-22 vote.

Even before the committee action, the bill’s prospects diminished when Democratic Gov. Ned Lamont said he would not sign the bill if it gets to his desk, stressing that the state has recently enjoyed cheery economic news, with a growing surplus in the current budget; a robust, $3.5 billion reserve called the rainyday fund and an upgrade in its bond rating.

“No, it’s not really my thing,” Lamont said in response to a reporter’s question Thursday morning. “We’re starting to get some economic momentum in Connecticut, and I don’t want to do anything to stop that.”

Later in the day, Lamont said the spending and tax packages were the focus Thursday of a preliminary discussion with top lawmakers, in which he voiced disapproval overall and stressed the need for a broad-based approach to the state’s needs.

Criticism of the package included the $1.9 billion deficit the state would be left with after the biennium.

Rep. Sean Scanlon, D-Guilford, co-chairman of the Finance Committee, said in an interview after the panel’s 5 o’clock deadline that this is a good year to attempt bold efforts to fight poverty, which has been exacerbated in the pandemic.

“We had an interesting challenge, which was how could we put together a package that reflects the fact that people are really hurting and need relief, but not going so far in one direction to affect the bond rating, the rainy-day fund and the influx of people in the state, people moving into the state,” Scanlon said. “I think this package is our attempt to find the middle ground between recognizing needs and keeping the progress going in terms of our new-found fiscal strength.”

The revenue package includes a new tax on social-media advertising that would generate more than $300 million over the two years; a continuation of the 10 percent corporate tax to raise $50 million a year; a $450 million child tax credit and a tax rebate for restaurants worth $49.5 million during the first year of the biennium. A new fee on the use of credit and debit cards would raise $2.5 million in the second year of the biennium.

The first-ever, per-child tax credit would cover up to three children for families making less than $200,000 or single parents making less than $100,000.

The new tax on the richest state residents would be focused on those with adjusted gross incomes of $500,000 and above. The new tax would range from 0.7 percent for taxpayers with federal AGIs between $500,000 and $2 million, to 1.5 percent for taxpayers with federal AGIs of $13 million or more.

The $1.4 billion projected to be generated over the biennium would not be subject to the state’s so-called volatility cap that was created during the financial crisis in 2017, because about $200 million would be siphoned into an equity investment fund to nearly double the amounts for lowerincome residents who participate in the Earned Income Tax Credit program.

Those claiming the EITC would be able to get additional income credits totaling $154 million over the biennium, according to an analysis of the bill prepared by nonpartisan legislative staff.

Republicans called it a gimmick to take a new program off-budget, and Lamont called it the kind of tactic that has historically led the state into fiscal crisis. The governor leveled similar criticism at the spending package that passed the Appropriations Committee on Wednesday.

“It’s sort of the same games that got us into trouble over the last 30 years,” Lamont told reporters Thursday afternoon. “And to respond to that by more taxes, is just not the way I think we should be going as a state.”

Scanlon, in a morning post on Twitter wrote, “Democrats give largest tax cut to working and middle class parents in Connecticut history.”

Later, he stressed to the committee that the state will have nearly $4 billion in its budget reserve to help lawmakers pay for services in the middle of the decade, including a billion dollars in federal support.

A new 2 percent surcharge on capital gains — bringing the total rate to 8.99 percent, would raise $262 million in the fiscal year starting July 1, 2022. According to the nonpartisan analysis of the legislation, the surcharge would apply to investment income for single tax filers with AGIs of $500,000 or more and a million dollars for joint filers.

During the committee discussion, Scanlon said the capital gains surcharge is a way to address “the serious challenges in our state” while keeping the state’s rate below those of Massachusetts and New York. “People have money in their pockets and they are spending it,” Scanlon said of the steadily rising budget surpklus, fueled by income and sales taxes. ,