Malloy’s election-year tax cuts face big test this week

By: Keith M. Phaneuf | CT Mirror

With his campaign announcement out of the way, Gov. Dannel P. Malloy faces a big election-year test this week when a legislative panel decides whether to back his controversial tax rebate plan.

Several of Malloy’s fellow Democrats on the Finance, Revenue and Bonding Committee have grumbled privately against his suggestion to give low- and middle-income taxpayers $55 each this fall.

But many of those same Democrats concede it would be very difficult to deny Malloy one of his top election-year initiatives – especially given his lukewarm standing in recent polls.

“I think it’s imperative that we do that” tax refund, Malloy told reporters after Friday’s State Bond Commission meeting. Yet he stopped short of saying a new budget without the tax rebate plan was unacceptable.

“I don’t want to use an ‘off-the-table’ or ‘settled-matter’ verbiage with my colleagues in the legislature,” he said. “I think they know that I believe, very strongly, that should be included in the budget. I believe it will be, and we move forward.”

Malloy insists his sole motivation behind the rebate is to reward voters who faced tax increases three years ago by sharing a portion of this year’s projected budget surplus.

Malloy took considerable heat for signing $1.5 billion in tax increases into law to close the deficit he inherited in 2011. Given recent cuts in tax reimbursements to hospitals, Malloy’s 2011 tax hike was closer to $1.8 billion.

Both Comptroller Kevin P. Lembo and nonpartisan legislative analysts project a $500 million-plus surplus for this fiscal year, which ends June 30. That bonus is controversial, though, given that Malloy and the Democratic-controlled legislature using borrowing and other gimmicks to push hundreds of millions of dollars’ worth of operating costs off until after the November election.

Nonpartisan analysts say there’s a $1 billion shortfall built into the first state budget after the election.

Malloy has proposed depositing $250 million of surplus into the emergency budget reserve and another $100 million into the cash-starved pension fund.

Several Democrats on the finance panel have said privately that, given the post-election deficit, the entire surplus should be saved or used to pay pension debt.

The co-chairmen of that panel, Rep. Patricia Widlitz, D-Guilford, and Sen. John Fonfara, D-Hartford, declined Friday to speculate on what the committee might do when it tackles the matter Tuesday.

Democrats on the finance committee are expected to meet in a closed-door caucus once more before that meeting.

“I think it is premature to comment now, out of respect for our caucus members and the hard work they do,” Widlitz said Friday.

Sen. L. Scott Frantz of Greenwich, the ranking GOP senator on finance, said he doesn’t expect much Republican support for the Democratic governor’s rebate.

“I think the general feeling is that the rebate is considered somewhat ludicrous when we have so many unfunded obligations and so much indebtedness,” he said.

Malloy also has asked the finance committee to back a second controversial tax break.

The Democratic governor, who has clashed with public school teachers on several issues in recent years, offered them a financial olive branch in February in the form of a two-stage income tax break.

Malloy’s proposal specifically would exempt 25 percent of retired teachers’ pensions from state income taxes retroactive to Jan. 1.

That exemption would climb to 50 percent in January 2015. The annual cost to the state once this it is fully implemented would be $23.7 million per year.

The governor rejected suggestions this was an election-year overture to a key part of his base, noting that most retired teachers aren’t eligible to receive Social Security benefits. About 23,000 retired teachers live in Connecticut.