The real size of Lamont’s tax hike: $751M

The biggest of these sales tax expansions is a tax on legal services, which a state Capitol teeming with lawyer-legislators just might nix. That’s my bet.

The total of Gov. Ned Lamont’s proposed tax hikes is $751million per year — not $1 billion-plus, as you might have heard.

That $751 million figure is the amount taxes would rise by the second year of the two-year budget plan. I’m not calculating the firstyear increases because most don’t take effect until either the second year or halfway through the first.

The biggest piece of the increase, by far, is a $520 million expansion of the state sales tax. The rate would remain the same, 6.35 percent, but Lamont wants the General Assembly to eliminate exemptions and add in services that are not now taxed.

The biggest of these sales tax expansions is a tax on legal services, which a state Capitol teeming with lawyer-legislators just might nix. That’s my bet.

Then we have $69 million the state would raise from real estate services such as appraisals, plus an added $7.9 million in “conveyance” fees for the sale of houses more than $800,000. Could those charges be connected to the fact that the Connecticut Association of Realtors went all-in for Lamont’s Republican opponent — spending about $600,000 against Lamont? Nah.

Back to the details in a minute. First, an overall view: Lamont is taking a lot of heat from Republicans for his $800 million highway tolls proposal — which isn’t part of the $751 million tax increase because it wouldn’t start until 2025 at the soonest — for his shortage of cuts in state operations, and for the sales tax hike.

“There is nothing that hurts the middle class more than this budget proposal,” House Republican Leader Themis Klarides, R-Derby, said on Wednesday.

Funny, the liberal Democrats don’t love the sales tax jump either. Members of the House Progressive Caucus, 44 strong, aren’t thrilled about Lamont’s refusal to hike the personal income tax for high-income households. Josh Elliott, DHamden, founder of the caucus, wants to see one full percentage point added to million-dollar earners.

“It’s ‘Everything is on the table’ except this one thing, and that one thing is the elephant in the room, the income tax,” Elliott said, referring to Lamont’s open-door, open-debate policy.

Elliott, who’s not the caucus chairman, added, “I would hope that people in the progressive caucus will stay cohesive.”

What all that tells us is that Lamont’s plan is pretty much downthe-middle, reflecting his view from Greenwich that it may be morally right to tax the rich a bit more, but the danger of them fleeing is too great. It’s certainly true that a wider sales tax hurts the middle class, but there’s some evidence that states with a relatively bigger sales tax are growing faster than income-tax states.

What else is in the package? Other big pieces of that Lamont sales tax plan, in order, are vehicle trade-ins (think the dealer will eat that one when it has to pay a tax on the value it pays you? Think again); engineering services; barber shops and salons; and digital downloads.

Some of this stuff is way more complex than it seems. For example, the sales tax would exempt business-tobusiness purchases. That makes sense, as Lamont doesn’t want to raise the cost of doing business in Connecticut. But good luck deciding what’s a business purchase and what’s a personal purchase if, for example, you’re a self-employed engineer already having to charge a new tax on your services.

The second biggest tax increase would come from a 1.5-cent-per-ounce tax on sweetened drinks, chiefly soda. Lamont wants it not for the money, but for our health.

I say take it for the money, we could use it. Sadly, it’s a tax on the poor, though a voluntary one. And it’s not going to be as easy to pass as you might think, since it affects jobs. The beverage industry will go all out on this one, saying people will go over the state lines to buy their drinks.

You may have read or heard that Lamont’s tax increase is $1.7 billion, or some other number larger than $1 billion. Those numbers are wrong.

It’s true, the total amount of increased revenue in the governor’s 2-year, budget is $1.7 billion. But that larger number includes, for example, an existing, $516 million hospital tax that was scheduled to expire. Extending it allows the state to gain $400 million in extra federal Medicaid reimbursement — so I’m not calling it a tax increase.

The larger number also includes about $125 million in other tax credits, exemptions and reductions that were scheduled to take effect this coming July 1. They include, for example, a surcharge on the corporate earnings tax that totals tens of millions of dollars a year. Lamont, like other governors before him, is saying, let’s postpone those tax reductions.

I don’t count those as tax increases, either.

Then there’s a $49 million shift of a small part of the state’s $1.3 billion payment into the teachers’ pension fund. Former Gov. Dannel P. Malloy had wanted to make this a $400 million payment from towns, and that was shot down.

Is that a new tax? Tough call. I say yes, because towns need to cough it up. On the bright side, it would lead directly to a $49 million savings for the state.

The $751 million is my interpretation based on taking out all sorts of revenues that are already there, perhaps on another part of the budget. It amounts to 3.3 percent of the fiscal 2021 budget.

That puts it well below the biggest tax increases of recent years — the start of the state inciome tax in 1991 under former Gov. Lowell P. Weicker Jr; and former Gov. Dannel P. Malloy’s increases in 2011 and 2015.

The hope is that Connecticut’s economy will recover enough that we don’t need to enact this full sales tax hike in 2020. We’ve got 14 months before that decision is upon us and plenty of debate between now and then