Fasano Question’s Malloy’s Proposed Sales Tax Cut In Next Fiscal Year [Courant]

February 18, 2015

Article as it appeared in the Hartford Courant

Gov. Dannel P. Malloy proposed a cut in the state’s sales tax both this year and in the future – surprising legislators and insiders Sunday in a tough budget year.

The sales tax would be reduced from its current rate of 6.35 percent down to 6.2 percent in November – after the new fiscal year starts. The tax would then drop to 5.95 percent in 2017 – to its lowest level since 1971.

The move marks a reversal from 2011 when Malloy and the Democratic-controlled legislature raised the 6 percent sales tax to the current level of 6.35 percent as part of the largest tax increase in state history.

Malloy made the announcement during a taping of the weekly “Face The State” program with longtime host Dennis House on WFSB-TV.

The second-term governor said he would be “doing away with some exemptions on the business side” to help pay for the cut, but the governor’s office said that further details would not be released until Monday.

Malloy told House that he had not discussed the proposed cut with any legislative leaders.

“You’re the first guy I’m having this discussion with,” Malloy told House.

For luxury items, the state will continue to have a higher level of sales tax, he said.

During the fall election campaign, Malloy did not propose any cuts in the sales tax. Instead, Republican gubernatorial candidate Tom Foley repeatedly talked about cutting the sales tax – on the campaign trail and during debates. Foley’s plan was to reduce the tax to 5.85 percent in the 2016 fiscal year, along with cutting the car tax in the cities where it is highest – including Hartford, Bridgeport and New Haven.

The sales tax is the state’s second largest revenue generator, collecting $4.22 billion in the current fiscal year. The sales tax collections dwarf most other taxes, including more than the taxes on corporate profits, cigarettes and gasoline combined. State officials had been projecting that the sales tax would generate 4.25 billion during the next fiscal year.

The administration says that the lowered tax rate would save taxpayers $70 million in 2016 and $155 million in 2017.

Legislators are concerned that one way of helping to pay for that tax cut would be continuing the sales tax on clothing items under $50. That exemption was scheduled to be lifted on July 1, meaning that the sales tax would not be charged on those items. By retaining the tax on those items, the state would generate $138 million during the fiscal year.

The largest tax of all is the personal income tax, which is expected to generate $9.26 billion in the current fiscal year – more than twice the level of the sales tax. That total is expected to increase to $9.7 billion in the fiscal year that starts on July 1 as the stock market has been booming and the state economy is expected to continue improving.

House Speaker Brendan Sharkey of Hamden did not have detailed comments about the tax cut Sunday, saying he is looking forward to a budget briefing later this week and “then allowing the legislative process to work.”

Brian Flaherty, a former state legislator who is now a senior vice president at the Connecticut Business and Industry Association, said that CBIA had not yet been informed of the precise changes in business taxes.

“Businesses in Connecticut are looking for stability and predictability in spending and certainly taxes,” Flaherty said Sunday. “The tax code can be used to help fuel the state’s economy, and there are a lot of levers the governor can pull. You can reduce your taxes if spending is going down.”
Republicans said they needed to see the full budget to know the impact of the proposals.

“Simply uttering the phrase “middle-income tax relief” does not make it so for Connecticut families who continue to suffer under Gov. Malloy’s massive tax hike,” said House Republican leader Themis Klarides.

Senate Republican leader Len Fasano of North Haven said he still has plenty of questions about the budget.

“If the governor simultaneously ends other exemptions and eliminates the scheduled phase-out of other taxes on things like clothing under $50, taxpayers could see more taxes in the end,” Fasano said.

Malloy has been making announcements to various media outlets in advance of the release of his budget.

On Friday, he announced on the Chaz and AJ radio show that he was calling for increasing the hours of sale of alcohol at package stores and supermarkets. He also called for changing the complicated pricing system in an overall package that would generate an estimated $3.2 million in additional tax revenue.

But the chief lobbyist for the package stores, Carroll J. Hughes, told The Hartford Courant that the estimate is a “fiscal fabrication” because he said that consumers would still buy the same amount of alcohol – even if the stores are open longer. He said the small retailers did not make any extra profits with the expansion to Sunday sales because they had extra expenses from keeping the stores open for 52 Sundays per year.
The last call at bars in New York is at 4 a.m., but Malloy said he is not proposing an extension until that hour.

“We’ve tolerated that system in Connecticut for too long,” Malloy said of a minimum-pricing system that critics say has helped the small package stores remain in business.

Concerning the Hartford mayor’s race between Mayor Pedro Segarra and his former legal counsel, Luke Bronin, Malloy said, “Both of these guys are friends of mine.”

Regarding possibly running for a third term, Malloy said, “That’s a long way away.”

Concerning being a potential runningmate with former Secretary of State Hillary Rodham Clinton on a national ticket for the Democrats, Malloy said, “I think that’s a terrible idea. … I can’t imagine that I would be asked.”