Dems, Lamont at odds over taxing the wealthy

Gov. Ned Lamont and Democrats in the legislature are at odds over how to tax the state’s wealthiest residents as the controversial capital gains tax appears to be alive and well, for now.

A set of budget proposals approved Wednesday by the Finance, Revenue and Bonding Committees includes a new surcharge on capital gains, a move to increase taxes that Lamont has adamantly stated he is against.

The legislature’s plan would impose a 2 percent surcharge on investment income beginning in the year 2020 for single filers earning more than $500,000 annually and couples making more than $1 million a year. That’s estimated to apply to fewer than

14,000 taxpayers if it makes it to the final budget, and could raise

$262 million in revenue. “We’re trying to find the right balance,” said Rep. Jason Rojas, D-Hartford, who co-chairs the committee. He noted that the revenue package eliminates the gift tax, which applies to a similar group of taxpayers.

Opponents are concerned the tax could drive wealthy residents from the state, and discourage investment in real estate which would fall under the tax.

“I’m worried about the fact that in Connecticut you’re already paying conveyance tax, you’re already paying real estate agent, now you’re going to be paying capital gains surcharge, I’m just worried that people use their houses as investment mechanisms to build that nest egg,” said Republican Rep. Joe Zullo of East Haven. “It’s one of the last investment mechanisms many people have.”

Rojas noted the tax would likely not affect many people in the early stages of building their investments as it only applies to the highest investment income earners.

On Tuesday, committee leaders revealed substitute language for the bill that said the legislature would only study the idea of raising the capital gains tax. The committee voted to pass the bill, which led to confusion over the issue.

“It certainly could impact entrepreneurs that want to create and grow businesses here in the state or those that want to make investments in the state of Connecticut and help grow us because now we’re going to be taxing their capital reasons at a flat rate,” said Republican Rep. Chris Davis, R-East Windsor. Davis said earlier in the week he didn’t even want to study the idea of taxing capital gains.

Lamont opposed tax increases on investment income, just as he promised not to raise income taxes on the state’s richest residents. He has said he wants to hold tax rates steady, but he has proposed some tax expansions, like applying the state sales tax to more goods and services.

Prior to the creation of the state income tax in 1991, Connecticut had a separate capital gains tax rate. But in the compromise to create the income tax, the capital gains rate was slashed to 4.5 percent, the same as the top rate for wages. That hasn’t changed in more than 25 years.

“As we’ve seen before, increasing Connecticut’s capital gains tax is likely to drive even more highincome residents from our state, thereby burdening those without the means to relocate with increased taxes, plummeting property values, and fewer services,” said Yankee Institute president Carol Platt Liebau in a statement.