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As previously noted, Connecticut is one of only a handful of states where state leaders have given serious consideration to raising revenue as part of a balanced solution to closing their budget gaps.
In February, new Governor Dan Malloy (who calls himself the “Anti-Christie” referring to New Jersey’s notoriously conservative governor) released his budget proposal for fiscal year 2012. The plan would have closed roughly half of a $3 billion shortfall with a mix of new revenues from the personal income tax, sales tax, excise taxes, business taxes, and the estate tax.
As of this week, the governor moved one step closer to enacting his vision for Connecticut when he reached an agreement with House and Senate leadership on his tax and spending packages.
Both chambers’ Finance and Appropriations Committees approved the revised budget plan on Thursday and the full House and Senate will take it up next week. Not surprisingly, Republican lawmakers criticized the proposal and unsuccessfully offered a no-tax increase amendment that would have meant more than $1.4 billion in additional cuts to essential services.
One common criticism of the Governor’s original tax package was that it hit middle-income households the hardest. While a new 30 percent refundable state Earned Income Tax Credit (EITC) ensured low-income households would not see a tax increase (and in some cases would receive a net tax cut), the proposed elimination of the state’s property tax credit would have disproportionally impacted middle-income households.
As a result, an ITEP analysis found that middle-income households would have seen the biggest tax increase as a share of income under the Governor’s proposal. Tied to that criticism, several key House and Senate members as well as the Better Choices for Connecticut coalition pushed for a more progressive tax package (equipped with an ITEP analysis of that plan) that would ask the state’s wealthiest households to pay for the largest share of the tax increase.
The revised package appears to have addressed these criticisms. A scaled back version of the property tax credit would be restored and result in a smaller tax increase for middle-income households. And, changes to personal income tax rates and a mechanism to recapture the benefits of lower tax rates will mean that the top 5 percent will pay more than under the Governor’s original plan.
The Connecticut tax package also includes several significant changes to the state’s sales tax including broadening the base to include several services and currently exempted goods, a new ‘Amazon’ law, a 7 percent tax on luxury goods, and a small rate increase from 6 to 6.25 percent.
The governor’s original sales tax proposal was even more comprehensive, but several items (expanding the sales tax to include haircuts and boat repairs, an elimination of the sales tax holiday and elimination of exemption on auto-trade-ins) were left out of the revised package.
Otherwise, the revised package mostly mirrors the original and includes tax increases on estates, cigarettes, alcohol, and corporate income.