Witkos: “Nibbling at the tax increases for these large corporations isn’t going to cut it” [Courant]

June 15, 2015

Hartford Courant

HARTFORD — Gov. Dannel P. Malloy responded to harsh criticism from several major Connecticut employers by proposing Friday to roll back some of the planned increases in corporate income taxes included in the Democratic budget approved by the legislature.

Top leaders of the General Assembly’s Democratic majority said that they hadn’t been consulted by the governor about his proposed revisions, only being informed shortly before he announced his plan at a news conference Friday morning.

“Obviously, we will consider the governor’s proposals,” said the Senate’s top Democrat, Martin M. Looney of New Haven. “This is brand-new.”

Republican legislative leaders claimed that Malloy “is now in full retreat from his budget … as he backpedals on policies that he and the Democratic leaders are responsible for.”

“His proposed changes are not nearly enough and don’t reflect the broad changes we need,” the Senate’s top GOP leaders, Len Fasano of North Haven and Kevin Witkos of Canton, said in a joint statement.

“It’s interesting that he’s trying to make a horrific budget merely horrendous only after a statewide outcry by business and the middle class,” said House Minority Leader Themis Klarides of Derby.

Malloy’s proposed changes to the budget, which he has yet to sign into law, include:

  • Keeping the current state tax on computer and data processing at 1 percent, instead of raising it to 3 percent as called for in the Democratic plan.
  • Delaying the effective date when the state’s combined reporting “unitary tax” on corporate income takes effect to Jan. 1, 2016. The legislative budget called for the tax change to be retroactive to Jan. 1, 2015.
  • Eliminating the proposed state sales tax on car washes and parking.
  • Relaxing the Democratic budget’s proposed tough new cap on corporate tax credits in any one year. Current law allows companies to use up to 70 percent of tax credits in one year. The Democratic budget calls for the cap to be dropped to 50 percent, and Malloy is urging that the cap be set at 55 percent for a single year.

Malloy said the two-year tax reductions would lower revenue by $223.7 million. He said he will ask the legislature to grant him authority to make reductions of up to 1.5 percent of spending across the board.

The General Assembly is already planning to return for a special legislative session to deal with various budget and criminal justice bills that lawmakers failed to act on before the June 3 conclusion of their regular 2015 session. Democratic leaders said Friday that they still haven’t decided when the legislature would meet.

Fiscal Year Ends Soon

The state’s fiscal year ends at midnight on June 30, and the legislature and Malloy must agree on a budget plan by then or state government could run out of money. The budget passed by the legislature calls for state spending of more than $40 billion over two years and $1.5 billion in tax and fee increases to resolve major fiscal issues.

“I have always been clear that I believe that we need to be smart about spending, about revenue and about our future,” Malloy said Friday. “We’ve made significant economic progress over the past several years, and with historic new investments in transportation, we’re poised to grow even more. Even as we have one of the lowest effective corporate tax rates in the nation, these steps are being made to protect Connecticut’s long-term interests, because I believe in doing everything possible to expand our economy.”

Asked if he had been frightened by warnings from GE executives and other companies that they might move out of the state, Malloy said that he “took the time to hear from the business community and others … and I’m putting forward what I think is a proposal that goes a long way in addressing many of the challenges.”

Prior to the uproar over business taxes, Malloy said that he would sign the Democratic plan into law.

Looney and House Speaker J. Brendan Sharkey, D-Hamden, denied that Malloy’s unilateral proposal for changing the legislature’s budget in any way contradicted the Democratic leaders strong and determined defense of their tax-and-spending plan.

“I don’t think it undercuts our message,” Sharkey said during a news conference to showcase municipal leaders’ backing of the budget’s increases in state revenue for cities and towns, and reforms of local property taxes on motor vehicles.

The Democratic leaders repeatedly declined to say whether they or their rank-and-file colleagues would agree to Malloy’s proposed tax revisions. “You’re asking us to give the conclusion of the story before we’ve opened up the book,” said Senate Majority Leader Bob Duff of Norwalk.

Looney did identify one area of potential agreement with the governor. He said that Malloy’s recommendation to delay implementation of the unitary tax on corporate income for one year “is one that might have consensus,” if only to give businesses more time to prepare for it.

But Looney was adamant that the unitary tax, which has drawn strong objections from top corporate executives at General Electric and other companies, would remain in the budget. Looney called that new tax reporting system “a critically important piece” of the budget. The unitary tax is designed to raise an additional $62.3 million over two years, and Looney said that Connecticut was the only state in New England that doesn’t have that type of tax.

‘Isn’t Going To Cut It’

General Electric’s top executives announced last week that they were exploring the possibility of moving their corporate headquarters in Fairfield out of Connecticut because of the new budget plan’s corporate tax increases. Indiana state officials have opened up a public campaign to lure GE, Aetna Inc. and Travelers to their state.

Witkos said that “nibbling at the tax increases for these large corporations isn’t going to cut it.”

“I think he [Malloy] drank a cup of coffee this morning, he woke up and he realized this budget is bad for Connecticut,” Witkos said. “He needs to veto the budget.”

Brunilda Ferraj, a senior public policy specialist for the Connecticut Community Providers Association, expressed concern Friday afternoon about Malloy’s announcement. “The governor’s announcement today that he would like to cut more than $200 million from the hard-fought budget agreement passed by the House and the Senate is devastating news for some of the state’s most vulnerable citizens, who believed the critical programs they depend on had been saved,” she said. “We urge the House and Senate to support the budget as passed on June 3, without additional changes.”

Malloy said that the changes would reduce the spending increase in the fiscal year starting July 1, 2015, compared to the current fiscal year, to 3.25 percent — which he characterized as moderate growth. “The across-the-board reductions apply to all line items in the budget, except accounts legally required to be funded at the appropriated levels.”

Malloy said that the 1.5 percent cut in expenditures is “doable and I want to see that done. I encourage everyone to embrace this proposal with the intention of saying, hey, we did some big things, now we need to have the public understand how big those things are and put them in context. The best way to allow business leaders and the public to put those things in context is to make these changes,” he said.

He said he wants those cuts to take place across the board. He said he intends to continue funding long-term obligations such as pensions. He also said he intends to maintain the major investments proposed in transportation, and property tax reforms.

Malloy’s proposed cuts would also apparently apply to some of the additional money the Democratic budget would send to cities and towns. At Friday’s legislative news conference, municipal leaders from throughout the state called the reforms included in the budget essential to providing tax relief for middle- and working-class taxpayers.