State seeks to adopt bud­get with­out in­come tax hike

The News-Times - - BUSINESS - By Keith M. Pha­neuf Tax hikes don’t al­ways re­quire a rate in­crease De­fer­ring a cam­paign pledge

The House of Rep­re­sen­ta­tives be­gan de­bate Mon­day af­ter­noon that stretched late into the night on a bud­get that averts a ma­jor pro­jected deficit with­out in­creas­ing in­come tax rates, but does shift bil­lions of dol­lars in pen­sion debt onto the next gen­er­a­tion of tax­pay­ers.

De­spite the po­ten­tial for a $3 bil­lion­plus deficit un­less ad­just­ments were made, leg­is­la­tors and the new gov­er­nor made new in­vest­ments in health care, bol­stered lo­cal ed­u­ca­tion aid sig­nif­i­cantly while spar­ing cities and towns from hav­ing to help cover mu­nic­i­pal teacher pen­sion costs.

The $43.4 bil­lion, two-year plan avoids an in­come tax hike on the rich the new gov­er­nor op­posed, but es­tab­lishes a much smaller “man­sion tax” sur­charge on the sale of ex­pen­sive homes. The bud­get also asks more from small busi­nesses and de­fers the first stage of prop­erty tax re­lief La­mont pledged on the cam­paign trail.

It broad­ens the sales tax, im­poses a higher rate on dig­i­tal down­loads, adds new levies on e-cig­a­rettes and plas­tic bags, in­creases the al­co­holic bev­er­age tax, and adds a nickel to bus fares.

Though state em­ploy­ees re­buffed La­mont’s re­quest to set new lim­its on re­tirees’ pen­sions, the bud­get does as­sume $455 mil­lion in other la­bor sav­ings over two years.

The pack­age does not in­clude tolls, but it does di­vert funds orig­i­nally pledged for trans­porta­tion, keep­ing them in the Gen­eral Fund.

The bud­get set­tles a long­stand­ing dis­pute be­tween the state and its hos­pi­tal in­dus­try and pro­vides as­sis­tance to home­own­ers strug­gling with crum­bling foundation­s.

And it leaves Connecticu­t with a $2 bil­lion emer­gency bud­get re­serve, the largest in state his­tory — and with the po­ten­tial to grow it fur­ther over the next two years.

“We’re re­ally proud of the doc­u­ment that came out,” House Speaker Joe Ares­i­mow­icz, D-Ber­lin, said a few hours be­fore the de­bate be­gan. “It’s com­ing out on time, bal­anced, and makes in­vest­ments in our municipali­ties through ed­u­ca­tion, work­force de­vel­op­ment.”

But Se­nate Mi­nor­ity Leader Len Fasano, R-North Haven, did not mince words in his counter-as­sess­ment.

“I find this bud­get to be re­ally dis­gust­ing,” he said, call­ing it a “hodge­podge” of taxes and new poli­cies “with no fu­ture, no plan.” Nei­ther House nor Se­nate Repub­li­cans pro­posed an al­ter­na­tive bud­get this year.

“There is no con­sis­tency and theme to this bud­get ex­cept tak­ing money out of peo­ple’s pock­ets,” said House Mi­nor­ity Leader Themis Klar­ides, R-Derby.

La­mont spent con­sid­er­able po­lit­i­cal cap­i­tal re­sist­ing any in­crease in in­come tax rates, which had been in­creased in

2009, 2011 and 2015. And he turned up the pres­sure when the Fi­nance Com­mit­tee pro­posed an in­come tax sur­charge on cap­i­tal gains by the wealthy.

The gov­er­nor called any in­come tax hike aimed at the rich a “a re­ally bad idea” and said he fears it would prompt many to leave Connecticu­t.

But there are tax hikes in the com­pro­mise bud­get.

The plan raises about $340 mil­lion in the first year and $315 mil­lion in the sec­ond year by in­creas­ing tax and fee in­creases and by can­cel­ing pre­vi­ously ap­proved tax cuts that haven’t taken ef­fect yet. This doesn’t in­clude $1 bil­lion in re­lief for hos­pi­tals that is likely be re­solved in spe­cial ses­sion this sum­mer.

Con­sumers pick up a heavy share of that bur­den.

The sales tax on dig­i­tal down­loads rises from 1 per­cent to the stan­dard

6.35 per­cent rate. Sales tax ex­emp­tions on park­ing, dry clean­ing, in­te­rior de­sign ser­vices and safety ap­parel are elim­i­nated and a 1 per­cent sur­charge on restau­rant food and other pre­pared meals is added.

Gro­cery store and other re­tail shop­pers will pay a new 10-cents-per-bag tax on plas­tic bags. This will raise about $27 mil­lion per year for the state.

La­mont’s pro­posal for a tax on sug­ary beverages was dropped, but law­mak­ers did im­pose a new tax on va­p­ing prod­ucts con­tain­ing nico­tine.

The al­co­holic beverages ex­cise tax will rise 10 per­cent, draw­ing $4.4 mil­lion from con­sumers over the com­ing bi­en­nium.

The bud­get does cut the ex­cise tax on craft brew­ery beer in half, sav­ing pa­trons of that prod­uct $200,000 over the next two years.

When it comes to the in­come tax, the pro­posed cap­i­tal gains sur­charge — which was es­ti­mated to raise $262 mil­lion per year from wealthy res­i­dents — would have been the sin­gle largest tax hike, had it not been scrapped.

But there were other in­come tax in­creases in the bud­get.

Own­ers of lim­ited li­a­bil­ity cor­po­ra­tions and other small and mid-sized busi­nesses that don’t pay the state cor­po­ra­tion tax will pay an ex­tra $50 mil­lion per year due to the re­duc­tion of an in­come tax credit.

In ad­di­tion, pre­vi­ously ap­proved in­come tax cuts for re­tired teach­ers and col­lege grad­u­ates with stu­dent loan debt — which in­volved new or ex­panded in­come tax cred­its — would be re­pealed be­fore they could take ef­fect.

The gov­er­nor also agreed to de­fer one of his main cam­paign prom­ises — ex­pand­ing the largest in­come tax credit, one that helps low- and mid­dlein­come fam­i­lies cover lo­cal prop­erty taxes.

House­holds with­out chil­dren lost ac­cess to that credit, which pro­vides up to $200 per filer with re­lief.

La­mont pledged last fall to re­store el­i­gi­bil­ity to that group, and the $53 mil­lion in cu­mu­la­tive an­nual re­lief it lost, in the sec­ond year of his first twoyear bud­get. But el­i­gi­bil­ity was not re­stored.

“The gov­er­nor’s top cam­paign prom­ise and ad­min­is­tra­tion fo­cus was achiev­ing an hon­estly bal­anced bud­get, passed on time,” said La­mont spokesman Rob Blan­chard. “… Do­ing so meant clos­ing a $3.7 bil­lion deficit with­out sig­nif­i­cant cuts or tax rate in­creases” and in­creas­ing ed­u­ca­tion aid to cities and towns.

“The gov­er­nor looks for­ward to work­ing with leg­isla­tive col­leagues in the next bi­en­nium to ex­plore po­ten­tial op­por­tu­ni­ties to lower the prop­erty tax credit and con­tinue to sup­port Connecticu­t’s work­ing fam­i­lies” Blan­chard added.

The new bud­get would wave real es­tate con­veyance taxes on home­own­ers in east­ern Connecticu­t who are strug­gling to sell their houses be­cause of crum­bling foundation­s.

A new “man­sion tax” sur­charge also was added to the real es­tate con­veyance levy for the sale of houses val­ued at more than $2.5 mil­lion. This would raise $6.3 mil­lion an­nu­ally start­ing in 2021.

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