Sen. Kane: CT residents and businesses cannot afford more taxes. (Waterbury Republican-American)

May 5, 2015

Article as it appeared in the Waterbury Republican-American
GOP to hold hearing on Democrats’ budget plan

House and Senate Republicans are going to independently conduct a hearing Monday on a Democratic tax package that they say includes $2.4 billion in tax and fee increases.

Republican leaders decided to go it alone after Democrats ignored a GOP request last week to schedule a hearing on the Finance, Revenue and Bonding Committee’s plan. Republicans said taxpayers had no opportunity to comment on many of its tax proposals.

“Republicans are giving everyone in our state a voice,” said Senate Minority Leader Leonard A. Fasano, R-North Haven..

The hearing will be held Monday at 1:30 p.m. in hearing room 1E of the Legislative Office Building.

House and Senate Republicans intend to use the forum to promote the two-year, $39.6 billion budget plan that they have proposed, and to hammer Democrats for proposing more tax increases.

The GOP budget does not raise taxes, but rather relies largely on nearly $500 million in labor savings and overtime reductions to restore many of the unpopular cuts that Gov. Dannel P. Malloy proposed in his two-year, $40 billion budget plan.

State residents and businesses cannot afford more taxes on top of the record tax increases that Democrats and Malloy imposed four years ago, said Sen. Robert Kane, R-Watertown, one of the two ranking Republicans on the Appropriations Committee.

“We have seen $6.4 billion in tax increases over the last four years,” said House Minority Leader Themis Klarides, R-Derby. “Enough is enough. No more.”

The first two-year budget that Malloy negotiated and signed in 2011 raised a record $2.6 billion in tax increases to close multi-billion dollar deficits.

That 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 It also imposed a new tax on electricity generation that has since been repealed.

“It didn’t work. We are still in deficit,” Kane said.

The current $19 billion budget is a running a deficit of $161.7 million, according to the Malloy administration and the state comptroller’s office. The legislature’s budget office is projecting a shortfall of $184 million.

The legislature and Malloy are confronting budget gaps of $1 billion for the 2016 and 2017 budget cycle.

Malloy and Democrats have criticized the Republican plan for relying so heavily on labor savings and the threat of layoffs to leverage concessions from state employee unions.

House Speaker J. Brendan Sharkey, D-Hamden, referred again to the recently announced settlement with unions to end a long-running lawsuit over former Gov. John G. Rowland ‘s decision to lay off thousands of workers during a 2003 labor dispute.

He said Republicans would repeat Rowland’s costly mistake. Attorney General George C. Jepsen has estimated the unions stood to win $300 million or more in damages.

“Their partisan hearing would do little more than expose their illegal scheme of breaking existing contracts and not being serious about meeting the needs of Connecticut families,” Sharkey said.

Malloy pledged during last year’s re-election campaign that he would not raise taxes. However, that did not rule out continuing taxes that were due to expire or eliminating scheduled tax breaks.

The governor’s budget plan proposed a number of tax changes that the legislature’s Office Fiscal of Analysis net an additional $830.6 million over the two-year budget cycle — $515.6 million in the upcoming 2016 fiscal year that starts July 1, and $315 million in the 2017 fiscal year.

The proposed tax changes repeal exemptions to the sales tax, cap tax credits for businesses, indefinitely continue a 20 percent surcharge on the corporation tax, and delay scheduled increases in the state’s earned income tax credit and the income tax exemption for single filers.

The Democratic package raises nearly $18.6 billion in 2016 and another $18.9 billion in 2017.

Overall, it raises $615.7 million more for the general fund than Malloy proposed over the two-year budget cycle. The general fund is the largest of the nine appropriated funds that make up the state budget, and it finances most state operations.

On the income tax, the Democratic plan raises the top marginal rate from 6.7 percent to 6.99 percent to raise an estimated $102.4 million in 2016 and $42.7 million in 2017.

It also establishes a 2 percent surcharge on capital gains income for individuals earning more than $500,000 per year and couples topping $800,000. This is expected to raise $167.6 million next year and $178 million the following year.

Additionally, the Democrats propose to delay until 2018 the scheduled increase in the personal exemption for single filers from $14,500 to $15,000.

This will save $15.1 million in 2016 and $10.8 million in 2017. The reason for the difference is that the 2016 figures reflects savings over 18 months compared to 12 months for 2017.

The tax package also postpones a scheduled increase in the state’s earned income tax credit to get another $11 million a year in revenue.

The bill fully exempts federally taxable military retirement pay from the state income tax. Current law exempts 50 percent of this retirement pay.

Democrats propose to lower the sales tax rate from 6.35 percent to 5.85 percent on Oct. 1, and then drop it to 5.35 percent 15 months later, but the tax would be applied to a wide range of services currently exempted, including many that businesses use.

The changes net out to a $489.1 million gain over the two-year budget cycle.

The decreased rate will cost $252.7 million in the first year and $702.4 million, but the extended reach is expected to raise $623.3 million in 2016 and $760.9 million in 2017.

The Democratic plan cancels the scheduled return of an exemption on clothing and footwear costing less than $50, and it lowers the exemption for the sales-tax-free week from $300 to $100 for these items.

Democrats also would eliminate exemptions for computer and data processing services to raise $162.8 million next year and $207 million the following year.

The tax plan raises $322.7 million in 2016 and $410.3 million in 2017 from taxing a number of new services, including engineering, interior design, veterinary, dry cleaning and laundry, golf courses, building inspection, market research and public opinion polling and accounting.

On the corporation tax, the Democratic package extends a 20 percent surcharge for two additional years, adds another 10 percent surcharge for the 2018 income year, and then eliminates it.

The Democrats would reduce a cap on tax credits against the corporation tax from 70 percent to 50 percent. They also limit corporations to carrying forward no more than 50 percent of net operating losses to reduce tax liability.

The surcharge and cap proposals would save $243.2 million in 2016 and $299.6 million in 2017. The limit on the net operating losses represents the bulk of the savings. The two-year total is $277 million.

The tax plan would also require companies that are part of a corporate group to base their corporation tax on the entire group’s income. The combined reporting provision is expected to raise $38.6 million in 2016 and $23.7 million in 2017.

The Democrats would reduce a $250 tax that all registered businesses pay to $125. This will cost $20 million a year.

The tax package caps the amount of credits that hospitals can claim against a state tax on patient revenue at 50 percent, but it refunds $56 million from the tax to hospitals in 2017.

The legislature and Malloy adopted the tax four years ago to help close a multi-billion-dollar budget deficit.

The hospital provider tax allows the state to receive a 50 percent match from the federal government for redistributing the tax receipts to the hospitals that pay it.

Hospitals have complained the state has been taking a larger share of this federal funding, so that it costs 25 of the 27 acute-care hospitals that pay tax more money than they receive.

The state taxes in-patient revenue at a rate of 5.5 percent and outpatient revenue at a rate of 3.83 percent. It is currently based on 2009 revenues.

Malloy is proposing to equalize the rates and base the tax on 2013 revenues. No legislation is required to make these changes.