Sen. Kane to Gov. Malloy: “Reducing the rate of a spending increase is not a spending cut.” (Waterbury Republican American)

February 17, 2015

Article as it appeared in the Waterbury Republican-American

Malloy defends tax plan
Governor offers details on exemptions targeted

REPUBLICAN-AMERICAN — Gov. Dannel P. Malloy says his proposed changes to the sales tax amount to real tax relief for middle class families, but doubtful Republicans question if his claim adds up.

Malloy briefly took questions about his plan during a tour Monday morning of several businesses in downtown Middletown. A day earlier, he had broadly outlined some of his tax proposals during an interview on WFSB-TV’s “Face the State” broadcast.

The Democratic governor is proposing to repeal some exemptions while lowering the sales tax rate in two stages to its lowest point since 1971.

Malloy and the governor’s office fleshed out some of the details Monday, including identifying the specific exemptions being targeted and releasing an estimate that consumers will save more than $1.1 billion over five years.

Republicans reacted skeptically to the governor’s plan Monday, calling it a gimmick and a tax increase disguised as a tax cut.

“First, you have to remember this is the same governor who raised the sales tax four years ago. When he says he is lowering, it is only because he raised it,” said Sen. Robert J. Kane, R-Watertown, one of the two ranking Republican members of the Appropriations Committee.

Four years ago, Malloy and Democrats increased the sales tax from 6 percent to 6.35 percent, and they also imposed a new 7 percent luxury tax on clothing costing $1,000 and up, jewelry costing $5,000 and up, cars costing $50,000 and up, and boats costing $100,000 and up.

Malloy declined Monday to elaborate on planned changes to the corporation tax that he mentioned during Sunday’s TV broadcast, including possible revisions to credits against it.

“We get to roll this out according to our schedule until we get to Wednesday and you’ll get an answer,” Malloy told reporters.

He had even less to say about the spending side of the budget. The state is facing shortfalls in the $1 billion range over the next several years, according to estimates.

Malloy indicated that he will be proposing reductions to anticipated spending increases, but he said nothing about cutting any spending below current levels.

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

Republicans say reducing the rate of increase is not the same as cutting spending on a year-to-year basis.

“That is not really a cut,” Kane said.

Malloy also stated his budget plan will adhere to the state spending cap. This is a legal requirement, and majority Democrats also no longer have enough votes to revise the cap, as has happened in the past.

He did not discuss the economic assumptions that will underlie his upcoming budget plan,

ON THE SALES TAX, Malloy is proposing reducing the 6.35 percent tax to 6.2 percent, effective Nov. 1 this year, and then dropping it to 5.95 percent by 2017.

His plan would eliminate the reinstitution of an exemption on clothing and footwear costing less than $50. The tax break was scheduled to resume this July.

Also, Malloy is proposing a change to the annual Sales Tax Free Week in August. He would lower the exemption for purchases of clothing and footwear from $300 to $100.

“We think by making the adjustment to $100 that gives us a little extra money, but allows us to keep that, and, so at a $5.5 million cost, it would trim about $1 million in cost out of it,” Malloy said..

He and the governor’s office acknowledged Monday the changes would yield a net increase of $68 million in sales taxes next year. Republicans highlighted this increase.

“It is a shell game at the very least,” Kane said.

Yet, the administration also estimates the changes will net out to a $12 million reduction in revenue the following year.

“In year one, it adds additional value but the years beyond that — obviously this is a broader tax and will distribute more relief and, quite frankly, distribute it more equitably to the middle class,” Malloy said.

According to the governor’s office, the contemplated changes will save consumers $70 million next year, $155 million in 2017, $300 million in 2018, $311 million in 2019, and $323 million in 2020.

“In the long run, we are going to make a lot less money,” Malloy said.

Kane said the governor does not have a record for cutting taxes.

Malloy negotiated and signed a two-year budget plan in 2011 that included a record $2.6 billion in tax increases — $1.4 billion in the first year and $1.2 billion in the second year.

The budget plan raised income taxes, sales taxes, business taxes, the estate tax, tobacco taxes and taxes on beer, wine and liquor. It also imposed a new tax on electricity generation.

Malloy said the tax increases were required to close a deficit of $3.5 billion that he inherited in 2011. Despite the projected deficits ahead, he said the time is right now for tax relief for middle class families.