2012-2013 Budget Proposal Part 1: Sticker shock

November 23, 2010

Governor Dannel Malloy’s proposed budget goes to taxes first and not spending cuts. In a recent Finance Committee public hearing Senator Toni Boucher questioned the Office of Policy and Management about the fairness of this proposal.

Click here to see Senator Boucher’s response to Governor Malloy’s budget

Click here to see the details of Governor Malloy’s tax proposal [PDF]

Senator Toni Boucher says, “We lost 100,000 jobs in the private sector last year, yet state government did not share the “pain,” no jobs were lost on the state payroll. Now, after turning a blind eye to the pending catastrophe, the governor has asked taxpayers and businesses are asked to sacrifice again before any meaningful spending reductions. This is not fair to my constituents.”

There are $3.3 billion dollars in tax increases over the next two years (Proposed 2012-2013 budget: $1.7 billion in FY 2012 and $1.6 billion in FY 2013) and only $758 million in spending reductions from current services. This will be the largest tax increase in state history and the fourth largest in the country. Senator Boucher believes that this is not how to get our fiscal house in order.

A report from the non-partisan Office of Fiscal Analysis found the proposed budget relies on 58% in taxes, 13% cuts and 30% in possible union concessions.

Senator Boucher’s concern centers on the 20% of Connecticut taxpayers who pay 80% of the taxes. “These budget proposals not only punish the middle class, but target high income earners and small business owners who represent nearly 75% of our private sector jobs. If all of these new taxes are enacted, there would be no incentive for these businesses to stay. They also add to our reputation as having one of the worst business climates in the country,” said Senator Boucher.

Last year the income tax on our highest earners, job creators, was raised from 5% to 6.5. Businesses were also assessed a 10% surcharge on their profits representing the 4th largest tax increase in the country. This budget once again increases their tax on income to 6.7%, nearly 2 percentage points in two years.

Governor Malloy is also asking for a 3% luxury tax to be added to a new 6.5% sales tax for a total 9.25 % tax on luxury items. A $1,000 piece of clothing will be taxed at 9.25%. A $5,000 piece of jewelry will be assessed a 9.25% tax, a $50,000 car will be assessed a 9.25 % tax and a $100,000 boat would be assessed a 9.25% tax. Now you may say that those who can afford to buy the luxury items can afford the tax, but Senator Boucher says, “People won’t buy those items and will hold on to their money or buy them elsewhere. The businesses that sell the luxury items will be hurt. The people that make or build these items will be hurt.”

Governor Malloy is proposing to lower the threshold for the inheritance tax, commonly referred to as the death tax, from $3.5 million to $2 million, reversing the reforms enacted last year. This would give Connecticut one the highest inheritance taxes in the country, exacerbating the flight of our seniors to other states.

This proposed budget also includes a higher tax on middle income earners. Those who file jointly at $60,000 a year will see their taxes go up 38.5%. Those who file as a single making $40,000 a year will see his/her taxes go up 25.4%. This income tax increase, added to the effect of an increased sales tax is devastating to hard working people who are the back bone of our state.

There is no lower rate on the first $10,000 earned for an individual making $56,500 a year and for the first $20,000 for couples earning $100,500 a year. The 3% tax will be phased out and they will be taxed at 5% from the first dollar earned. On top of all this, these new income taxes will be retroactive to January 1st 2011, meaning that earners will be hit hard from the moment they new taxes take effect.

The $500 property tax credit is eliminated in this budget and items like pet grooming, car washes, haircuts, and aspirin and clothing under fifty dollars will all be taxed at a rate of 6.25 % up from 6%.

There is a new higher gas tax and there will no longer be a tax free week to buy school clothing for children. One of the more unusual taxes comes in the form of taxing money not spent. If you are a family who uses coupons you will be taxed on money you thought you saved. For instance a $10 item that you use a 50% coupon on would cost you $5 dollars. But instead of paying sales tax on the $5 dollars the Malloy budget would have the consumer taxed on the entire $10. It may mea paying only 62 cents versus 36 cents, but it’s a tax on money you aren’t spending.

Connecticut’s unemployment rate is currently 9%. Federal Reserve chair Ben Bernanke was recently quoted as saying, “It will be several years before the unemployment rate has returned to a more normal level,” Bernanke added, “Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.” He told lawmakers it will take years to bring the unemployment rate down to a more normal level of 5% to 6%. This is not the time to tax our residents more. The legislature should look at this proposed budget as a frame work, and consider cutting spending before asking its citizens to sacrifice more. They can no longer afford it.

Stay tuned for part 2.