Lamont, liberals clash on taxes
Governor says raising rates for the wealthy should be Biden’s call
HARTFORD — At a time when Connecticut is still struggling to get back on its feet economically after decades of slow growth, Gov. Ned Lamont is clashing sharply with liberal Democrats over whether to raise taxes.
Lamont, a fiscally conservative Democrat, says the past five governors have raised taxes — without generating a long-term solution to the state’s ongoing budget problems and more than 30 years of sluggish job growth.
“You don’t raise taxes when you don’t have to raise taxes,” Lamont said, in reference to the state’s growing surplus and new reputation as a haven for New Yorkers.
But liberals in the General Assembly are not backing down from their long-held priorities of taxing the rich and increasing spending for the poor. Democratic critics have questioned Lamont’s bona fides as a Democrat after he declared last week that he would not sign a Democratic-backed bill that would increase taxes on capital gains by 2 percentage points for high-income earners, create a
new consumption tax on the rich and retain a 10% surcharge on corporate profits that businesses have long opposed.
Other critics say that Lamont’s strong opposition to tax increases on the rich and his support for business make him seem like a liberal Republican.
“I think this is the best budget we’ve seen since I got elected,” said Rep. Josh Elliott, a fifth-year lawmaker from Hamden who is among the most liberal legislators. “I’m really excited by what the finance committee and the appropriations committee came out with. It’s not a surprise that the governor is threatening to veto this budget . ... This 2 percent [age point] increase on capital gains for the ultra-wealthy in our state is very popular within the party. It is very popular within the [House] caucus.”
Elliott rejects the idea that the timing is bad, adding that the timing is just right to increase taxes on individuals earning more than $500,000 annually and couples earning more than $1 million per year.
“These are people who have done better during the pandemic than anybody else — due to the meteoric rise in the stock market,” Elliott said. “I think the idea that we need to wait until we are in [financial] crisis mode is what got us into this mess in the first place. ... We have a chance to fix it now.”
Favoring the Biden strategy
Lamont and Republicans both say the timing is bad for tax increases as the state’s finances are finally stabilizing — allowing for the first Wall Street bond rating increase in the past 20 years. The state is projecting a budget surplus of nearly $250 million in the current fiscal year, and the rainy day fund for fiscal emergencies is projected to rise to $3.8 billion later this year. Those numbers have continued to increase due to a record-setting pace on Wall Street as Fairfield County millionaires and billionaires pay hundreds of millions of dollars in capital gains that are paid through the personal income tax.
In addition, the major federal stimulus package that was passed by Congress and signed into law by President Biden will send $6.2 billion to Connecticut for state and local government over the next three years, including $1.75 billion directly into the state budget over the next two years.
Lamont, though, doubled down on his views about the timing and against capital gains taxes. Instead, he said in an interview that President Joe Biden should set the tone on tax increases at the national level so that taxpayers in all states are treated the same.
“Rather than have one state pitted against another, one state competing with somebody else, one state stealing other people’s jobs and businesses over taxes, I think he’s right,” Lamont said of Biden. “What he does, he does it on a federal basis. All the states are on a level playing field, and it gives us the resources to take care of folks most in need. That’s why I supported him.”
If the logjam between Lamont and the liberals is to be broken, one of the biggest players will be House Speaker Matt Ritter, who guides the 97-member Democratic caucus that runs the gamut from far-left progressives to anti-tax-increase moderates.
Ritter said that both legislators and Lamont will need to compromise in order to pass the two-year, $46 billion budget and tax package in the coming weeks as the legislature faces adjournment on June 9. Ritter has called for patience in his caucus, saying that they needed to gain more information about the amount of tax collections and federal revenue that would be pouring into state coffers.
“This time of year, in April, everyone thinks that they are able to outsmart and outmaneuver everybody else,” Ritter said. “Everybody is the smartest person in the room in late April with plans and ideas and ‘I’m going to circumvent the Senate. I’m going to circumvent the House. I’m going to pressure the governor.’ What I have found is that lasts for about two weeks, and then we all realize that we have to work together.
“Here’s the reality. The appropriations budget [on spending] has been widely praised. If we put that on the board right now, I don’t know who would vote no in our caucus. I could be wrong. I’m not sure there would be any ‘no’ votes in our caucus.”
Looking forward, Ritter said an ongoing clash on the tax side of the budget would boomerang and hurt Democrats. As such, he said that Democrats must work with Lamont.
“Every week that goes by, we get weaker and the governor gets stronger,” Ritter said of the legislature. “He can run the state with more money than any governor in the history of the state of Connecticut, so we have to find a way to not let that become his play and his trump card — and also get him to understand where our members are coming from and find that middle ground. It’s a real challenge, but we can do it.”
Aligning with moderate Dems
The strongest backers among Democrats for Lamont have been the Moderate Democratic Caucus, a group of 25 House members who favor economic growth.
Five moderate Democrats voted against the tax-increase package that was narrowly passed, 26 to 22, by the finance committee that included both tax increases and direct relief for families through a new child tax credit and an increased earned income tax credit. Moderates are concerned about a proposed new tax on online advertising that they say would reach down into small businesses like hair salons and a wide variety of others that advertise on social media.
Rep. Kerry Wood, a Rocky Hill Democrat who co-chairs the caucus, said the moderate group is looking for economic development and holding the line on taxes. As a commercial real estate agent, she sees out-of-state residents looking more favorably on Connecticut than they have in the past.
“We have New York investors coming here in droves,” Wood said. “We’re seeing that on the residential side and the commercial side. I don’t want to hinder that in any way with tax proposals that are really unnecessary. We don’t need to tax. We really don’t. I think it’s really bad timing . ... Why would we pile on at this moment?”
Insurance executives have also come out against a plan to tax their companies to help pay for expanding state-subsidized health insurance beyond state employees. With many employees now working remotely, it is much easier for companies to shift operations out of state if business becomes too costly here, they said in a letter to Gov. Lamont last month.
Meanwhile, the Democratic bill would impose a new consumption tax that would generate $500 million per year from wealthy residents — in addition to $262 million per year from the capital gains surcharge. The consumption tax would be 0.7% for those earning between $500,000 and $2 million per year, and the highest rate would be 1.5% for those with a federal adjusted gross income of $13 million or more. The concept is essentially a super-charged sales tax on high-end consumption, but Republicans view it as a thinly veiled increase in the state income tax because it is based on income.
Rep. Sean Scanlon, a Guilford Democrat who co-chairs the committee with Sen. John Fonfara of Hartford, said he sees the package more for its tax cuts than for increases. That includes helping hard-working families by increasing the state earned income tax credit to 40% of the federal credit — a sharp increase from the current 23%.
The package also includes Scanlon’s high-profile plan for a new tax credit of $600 per child that is separate from the federal child tax credit. Joint filers earning less than $200,000 per year with two children would get a maximum nonrefundable credit up to $1,200 and a maximum refundable credit up to $840. Single filers earning less than $100,000 per year would receive the same amounts for two children.
No new taxes, but willing to negotiate
While Lamont’s clash with the liberals has become public, Lamont’s economic stance is not new for him.
When Lamont was publicly portrayed in 2006 as a liberal, anti-war activist when he burst on the scene in a Democratic primary against U.S. Sen. Joseph I. Lieberman, few concentrated on Lamont’s past fiscal history. But as a member of Greenwich’s finance board more than 30 years ago, Lamont angered fellow Democrats by voting with Republicans in favor of budget cuts. Lamont was the only one of six Democrats on the board to break with the party for budget cuts at a time when some Greenwich residents were calling for fiscal austerity.
Today, Lamont mentions his background as a business entrepreneur and former small company owner far more often than he mentions the Iraq War. He campaigned as “a fiscally conservative Democrat” as a candidate for state Senate in Greenwich in 1990 and called himself by that moniker.
Despite disagreements with liberals, Lamont said he is willing to negotiate in the coming weeks as the legislature faces adjournment for the regular session on June 9. The answer, he said, is avoiding tax hikes at the state level and allowing Biden to handle it at the national level.
“I think Joe Biden has folks paying a little more when they can afford to do it,” Lamont said.