CT Gov Proposes Tax Increases to Close Shortfall

Nearly every Connecticut resident will pay more in taxes under proposal

By SUSAN HAIGH
|  Monday, Feb 14, 2011  |  Updated 11:30 PM EDT
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CT Gov Proposes Tax Increases to Close Shortfall

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Nearly every Connecticut resident will pay more in taxes under the budget being proposed this week by Gov. Dannel P. Malloy.

The new Democratic governor will propose raising taxes on everything from personal income to cigarettes, alcohol and gasoline, according to details of the tax plan released Monday by
his top advisers.

Besides increasing the sales tax rate, from 6 percent to 6.25percent  6.35 percent for retail purchases Malloy wants to put an end to a laundry list of goods and services that are currently
exempt from the sales tax. Under Malloy's plan, clothing and footwear under $50, pet grooming services, boat services, manicure and pedicure services, yoga studios, cosmetic surgery,
non-prescription drugs, limousine services, airport valet services and haircuts would be taxed.

The proposal also ends the popular sales-tax-free week, which istypically held in early fall when families are buying school clothes, as well as the property tax credit a maximum of $500
against the personal income tax.

``Everybody has been asked to do a little bit more,'' said Malloy's senior adviser, Roy Occhiogrosso. ``That's the only way you can avoid asking one group of people to do too much.''

Occhiogrosso said the new tax rates still maintain the state's competitive edge with other states and are done in the fairest way possible.

``(Malloy) believes people are willing to make sacrifices if they understand why,'' Occhiogrosso said. Malloy is scheduled to address a joint session of the General Assembly on Wednesday. That's when he will present his new budget.

It comes at a time when the new fiscal year, beginning July 1, is predicted to be anywhere from $3.2 billion to $3.5 billion in deficit, which is approximately 18 percent of current spending.

Budget director Benjamin Barnes said Malloy's two-year budget increases revenue by $1.5 billion in the first year. Details of the spending side of the budget have not been revealed, but Occhiogrosso said the cuts add up to about $2 billion. He said the new budget also includes proposed savings from state employees and agency consolidations.

The agency consolidations, however, are expected to save about $10 million in the short-term. That figure does not include savings from proposed higher-education mergers.

There was little excitement in Hartford for the tax package.

Chris Healy, chairman of the state Republicans, said Malloy's attempt to close the budget deficit ``by relying on the largest tax increase in Connecticut history is a failure of vision and leadership at a critical time,'' and he said the plan would be a disaster for the middle class, small business owners and investors but ``a pay day'' for the government.

``At long last, we see what many privately feared, that Governor Malloy is more interested in rewarding those who feed off government rather than those who produce wealth and opportunity,''
Healy said.

Senate President Donald Williams, D-Brooklyn, issued anoncommittal response.

``We respect the difficult challenge facing Governor Malloy, and we stand ready to work with him to pass a budget that is tough, fair and helps Connecticut grow jobs,'' he said.

The new governor's tax plan is far-reaching, affecting a litany of taxes including the income, sales and use, corporation, admissions, oil companies, insurance companies, estate, alcoholic
beverages and cigarette taxes. Any budget will ultimately have to be approved by the Democratic-controlled General Assembly.

Malloy has proposed eight income tax rates, ranging from 3 percent for joint filers earning up to $20,000 a year to 6.7 percent for joint filers earning $1 million.

Occhiogrosso said qualified lower-income earners will be able to offset some of the
tax increases by participating in a new earned income tax credit Malloy has proposed. All the income tax increases would be retroactive to Jan. 1.

The plan also includes two sales tax rates: 6.25 percent and 6.35 percent. Barnes said the higher rate would apply to retail purchases. The additional one-tenth of 1 percent will be collected
in a new fund that will help cities and towns. Barnes estimated it would raise $24 million.

Malloy's budget calls for increasing Connecticut's gasoline excise tax already among the highest in the nation to climb from 25 cents per gallon to 28 cents. The diesel tax will climb from 26 cents per gallon to 28 cents. It also raises various motor vehicle fees.

There also is a proposal to require companies that earn income in states with no corporate income tax, such as Nevada, to pay corporate income taxes in Connecticut on that income. While that idea isn't likely to be embraced by businesses, Barnes said there will be other proposals in the budget that are considered more pro-business, such as increasing the tax credit cap for companies that create jobs.

The plan continues a 10 percent surcharge on the corporation tax for two more years.
 

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