Senator Frantz on $55 Rebates, Malloy’s Tax Package

April 2, 2014

by Christopher Keating | Hartford Courant

HARTFORD – The legislature’s tax-writing finance committee voted Tuesday in favor of Gov. Dannel P. Malloy’s tax package for the next fiscal year, including refunds to individual taxpayers.

The most prominent piece of the package covers $55 refunds for individuals and $110 for families earning up to $400,000 per year. The total cost of the refunds is $155 million, and the money will be taken from the state’s projected surplus of more than $500 million in the current fiscal year that ends on June 30.

The bill passed by 31 to 19 on a largely party line vote. Rep. Ted Mouwkasher of Groton was the only Democrat to break with his party on the governor’s tax package, and all Republicans voted against it.

The package restores the sales-tax exemption on non-prescription drugs that are sold over the counter, which had been put in place by Malloy and the Democratic-controlled legislature in 2011. The finance committee bill also cuts income taxes by 50 percent on teacher pensions. The total revenue package for the general fund is $17.4 billion.

Malloy hailed the rebate plan and the committee vote, saying, “After all, if Connecticut taxpayers are asked to share in the sacrifice during tough times, they should also share in the state’s continuing economic recovery.”

He added that the bill “benefits municipalities by exempting them from the insurance premium tax on health plans. It restores the sales tax exemption on non-prescription drugs. And, it begins a phase in of exempting a portion of teachers’ pensions from the income tax.”

But Senate Republican leader John McKinney, who is running for governor, had a strongly different view of the votes by both the tax-writing and budget-writing committees.

“Unsurprisingly, Democratic leaders on the finance and appropriations committees have rubber-stamped Governor Malloy’s gimmick-filled budget proposal, including his most infamous and disingenuous gimmick, the $55 rebate check,” McKinney said. ”Like the governor’s proposal, this budget is unbalanced, fails to adequately pay down state debt, and ignores long-term structural deficiencies in state government. The result is a tax and spending plan Connecticut residents cannot afford today, and one that is projected to sink the state back into a $1 billion deficit by the middle of next year.”

State Rep. Vincent Candelora, one of the top three House Republican leaders, said that some of his constituents have come to him and said that the state should keep the $55 and instead pay down debt.

“I don’t like the $55 rebate that we have included in this package,” Candelora said. “Unless revenues turn around at a significant pace, we are going to be faced with a deficit in the out-years. … This is just a short-term outlook, and we are throwing money into a hole.”

He added, “We have long-term problems in the state of Connecticut.”

But Rep. Patricia Widlitz, a Guilford Democrat who co-chairs the committee, noted that the refunds are tax-free because they are not based on the personal income tax. She said the legislature should send refunds back to taxpayers “when there’s an opportunity to give back.”

Republicans offered an amendment to remove the refunds from the package, but the motion failed by 31 to 18 with five members absent. More than 2 million checks are expected to be mailed out by mid-September at a cost of more than $1.7 million.

“The so-called rebate is the “Three Card Monte” version of Governor Malloy’s phony math: Give me $700 in new taxes forever, and I’ll give you back a one-time payment of $55,” said Chris Cooper, a spokesman for gubernatorial candidate Tom Foley. “In his first year in office, Governor Malloy permanently raised taxes on Connecticut taxpayers by an average of over $700 — per year, per person, every year, into perpetuity — and now he offers an election year $55 refund.”

“Even as stunts go, Governor Malloy’s $55 deal is bad deal for taxpayers. By using these taxpayer dollars to bribe voters instead of paying down the state debt, the taxpayers will wind up paying more in long-term interest than they will ‘receive’ in their rebate checks. And I think most taxpayers know that is true.”

Sen. L. Scott Frantz, a Greenwich Republican, said, “Even those who need it a lot” understand that the $55 rebates should instead be put toward paying down debt.

“People are going to be looking us in the eyes and saying, ‘What are they doing up in Hartford?’ ” Frantz said, adding that the state’s bonded indebtedness “has grown significantly” under Malloy.

But Sen. John Fonfara, a Hartford Democrat who co-chairs the committee, said that citizens had participated in Malloy’s “shared sacrifice” that included the largest tax increase in state history. He said the legislature in the past had “punted” the state’s financial problems and kicked the can down the road.
“This is a one-time, $55 refund,” Fonfara said. “It will be in and out, back into the economy. That’s a good thing. … It’s a balanced approach and one we ought to support.”

The tax increases in 2011 included virtually every major tax in the state, including those on personal income, sales, corporate profits, estates, cigarettes, cigars, and alcohol.

State Rep. Pam Sawyer, a Bolton Republican, said that when the state offered rebates in the past under then-Gov. John G. Rowland, the state had surpluses near $1 billion.

“Most people will turn and tell you that they don’t want their children and their children’s children to pay for all of this debt,” Sawyer told her colleagues at the state Capitol complex.

Sen. Toni Boucher, who dropped her quest for statewide office and is instead running for reelection, said, “What everyone wants to see is real tax reform. This is not real tax reform.”

On the rebates, she added, “They see it as an election-year giveaway that is not genuinely long-lasting tax reform.”

Boucher also opposed Malloy’s plan for exempting 50 percent of teachers’ pensions from the state income tax. She noted that teachers do not receive Social Security payments because they have never paid into the system.

“That was made by teachers’ unions themselves,” Boucher said. “The Connecticut Education Association lobbied the state way back in 1959, and they never asked the state to repeal it. … Why just retired teachers? This exemption, to them, is not fair. It’s arbitrary.”

Rep. Ted Moukawsher, a Groton Democrat, said he could not vote “in good conscience” for the package because he believes the state has large long-term debts and is still not on good financial footing.

“In the long term, I don’t think it’s in the best interests of my constituents,” he said.

The committee also debated a bill that was proposed by Malloy that creates the Connecticut Aerospace Reinvestment Act, which will provide money for Pratt & Whitney as it seeks to build a new headquarters in East Hartford.

“It caps our overall exposure at $400 million,” Fonfara told his colleagues. “I urge the committee to strongly support it.”

In Branford alone, there are 18 contractors that supply parts to the company, officials said.

“This is about keeping what we have, but it’s also about the future,” said Sen. Gary LeBeau, a longtime East Hartford Democrat who now lives in East Windsor. “It’s part of our DNA in Connecticut. It’s there. It’s been there. It has helped us grow. … This is our sweet spot.”

Frantz said that it was “a very good deal” and not simply “another case of corporate welfare.”

“Boy, you talk about a household name, and not just in the United States of America. The heritage and the history of Pratt & Whitney is nothing less than amazing,” Frantz said. “They earn these tax credits. … It is a really good defensive play that Connecticut is performing here. … It’s going to be a beautiful headquarters. It’s a win-win for the state of Connecticut.”

Sen. Michael McLachlan, a Danbury Republican, said the bill is “a creative way with appropriate checks” and balances for the state and the company.

Rep. Tim Larson, the former Democratic mayor of East Hartford, said his father worked at the Pratt & Whitney factory for 37 years to support the family. Larson went into the company’s research area and said it was surreal that he needed to give his Social Security number to get inside on a tour.

Rep. Pam Sawyer, a veteran of 22 years at the Capitol, said, “This is an answer to a lot of people’s prayers.”