Sen. Kane: Connecticut taxes too many things (NH Register)

February 17, 2015

Article as it appeared in the New Haven Register

MIDDLETOWN >> Gov. Dannel P. Malloy pushed his proposed cut in the sales tax as he visited businesses on Main Street Monday, but it was the long-term benefits he stressed rather than the immediate loss of at least one popular tax exemption that won’t be restored in July.

Malloy will unveil his proposed two-year budget on Wednesday, but revealed over the weekend that he wants to cut the 6.35 percent sales tax in two stages. It would decrease to 6.2 percent on Nov. 1 and to 5.95 percent on April 1, 2017, under his plan.

The sales tax exemption for clothing under $50, which would save consumers $138 million annually, won’t be reinstated, according to Malloy, in order to help pay for the overall decrease in the sales tax, which he said was a bigger reform on tax policy.

Malloy confirmed that another exemption, the tax on non-prescription drugs, will go into effect. If it goes in on schedule, it will mean a loss of $16.5 million in state tax revenue.

Compared to the clothing exemption, the change in the sales tax starting in November would save consumers some $70 million in fiscal 2016.

It would start to exceed the savings from the clothing exemption in fiscal 2017 when the state estimates consumers will save $155 million from the sales tax cut.

That savings will be $300 million in fiscal 2018; $311 million in fiscal 2019, and $323 million in fiscal 2020, according to the administration.

Malloy said his proposal would bring a more equitable distribution in terms of taxes.

The exemption on clothing has not been in effect from fiscal 2012-2015, so the cut in the sales tax means all consumers will achieve a savings they haven’t had in four years.

“This is about treating the middle class better as circumstances in the state will allow us to do and they are clearly allowing us to do that,” the governor said.

Malloy said the state is seeing the largest private-sector job growth since 1998.

In order to further cover the sales tax change, the governor confirmed there would be changes to corporate taxes that were scheduled to be revised. He would not detail what they are until his full budget is unveiled on Wednesday.

The 20 percent surcharge on the corporation tax, a total of $118 million in revenue, is scheduled to be removed in fiscal 2016 and 2017 and was put off once before.

Malloy is being criticized for implementing some promised tax adjustments, but not all of them and critics charged that this violates his campaign promise not to raise taxes. The governor said cuts in tax revenue are being balanced elsewhere.

State Sen. Rob Kane, R-Watertown, the ranking member on the Appropriations Committee, responded to the governor’s plan.

“First of all, we always have to remember that Gov. Malloy raised the sales tax from 6 percent to 6.35 percent,” Kane said.

He said low and middle income residents “are still hurting” and he criticized not bringing back the exemption on clothing costing less than $50. Overall, he said the state taxes too many things and it is in need of overall tax reform.

Such a study on reform is set to start this year, but changes are not expected to be put into effect until later.

Malloy said his proposed tax revisions will also “help us maintain services, not perfectly, but help us maintain services to those folks who are most reliant on government.”

Malloy would not talk about cuts, but multiple times on Monday said it will be a “tough budget.”

“We will have to make cuts in projected spending on the same services basis. They will be significant. They may be less significant than they otherwise have been, and if they are, it is for a reason,” the governor said.

Social service budgets have already been hit hard in the cuts ordered by Malloy to the $19 billion current year budget, which is projected to be in deficit by $89 million. State Comptroller Kevin Lembo however, has said that Malloy’s plan to eliminate the red ink is doable.

The governor said it has always been the plan, when possible, to cut back on the tax increases that went into effect in 2011 to help cover the projected $3.5 billion deficit he inherited.

Malloy proposes to keep the Sales Tax Free Week in August, but it would be applied to $100 worth of clothing, rather than the $300 figure now in place.

Kane said parents count on this exemption to buy clothes and shoes for their kids before school starts in September.

Malloy said adjusting it downward gives the state about a $1 million in additional revenue out of the $5.5 million cost if the higher figure remained.

“It is a tough budget, but in every budget year it’s important to make progress and that is what we are trying to do,” Malloy said. To distribute that in the “broadest possible way,” the governor said it made more sense to cut the rate, rather than reinstate a specific exemption.

Malloy said when it drops to 5.95 percent it will be the lowest of the surrounding states and he expects it will be an incentive for people to shop in Connecticut. It will also be the lowest sales tax the state has had since 1971.

The sales tax was between 7 percent and 8 percent from 1976 to 1991 and 6 percent in 1975.

Similar to what he did during his campaign for re-election, Malloy lead a tour of several stores on Main Street, ostensibly to promote the sales tax cut, but most owners did not have much to say about it.

Malloy, trailed by a group of reporters, stopped into the Public Market where he had a cappuccino and then bought a loaf of Italian bread.

“It’s just a different way to approach things. There is always a deficit, so I don’t know how you are going to benefit from that,” John Passacantando, the owner for the deli for the past 26 years, said of the tax plan.

At Amato’s Toy and Hobby, Michael Mazzocco gave the governor a tour of a basement full of electric train sets, both American Flyer made by the former A.C. Gilbert Co. in New Haven, Lionel, Ives and Bing trains. There was also a collection of erector sets made at Gilbert’s.

Diane and Joel Gervais now own the store that was founded by her late father, Vincent Amato. The couple and the manager were out of town at a toy fair in New York City.

“I wasn’t being political,” Mazzocco said, when asked if he had an opinion about the proposed tax change. Mazzocco said he is just “one of the elves.”

Gary Nicol of Pedal Power, one of three stores he owns in the state, showed Malloy his extensive inventory and the repair shop.

“Any extra money to spend on more stuff is good. It will have more of an impact on larger ticket items than we sell – such as cars, but every little bit helps,” Nicol said.

Eliminating the 6.35 percent tax on $50 of clothing would save $3.17. Nicol said it is all personal perspective.

“I guess, if I’m barely living at the poverty level, $3 is like a big bag of rice for my family. It is all in who you ask the question to,” Nicol said.

“I think my clients, if $3 mattered, they wouldn’t be here,” Nicol said, as he stood in front of a fat-tire bike that easily goes through sand and snow. They start at between $1,200 and $1,500.

The other stores Malloy visited were Wild Orchid Flower Shop and the Middlesex Music Academy.