State seeks to adopt budget without income tax hike
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.