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Malloy Looks to Refund Taxpayers, Boost Rainy Day Fund

by Christine Stuart | Jan 30, 2014 12:41pm
(15) Comments | Commenting has expired
Posted to: Economics, Election 2014, Town News, Derby, Jobs, Pension, State Budget, Taxes

Christine Stuart photo

Gov. Dannel P. Malloy

(Updated 1:56 p.m.) Gov. Dannel P. Malloy outlined his plan Thursday to spend an estimated $505 million budget surplus, including sending a $55 check to most taxpayers.

At Derby City Hall, Malloy said he wanted to use $250 million to bolster the Rainy Day Fund, make an additional $100 million payment to the state’s pension fund, and give taxpayers back $155 million through a refund program.

The refund program, which was done in 1998 and 1999 by former Republican Gov. John G. Rowland, gives individual taxpayers earning less than $200,000 a year a $55 check. Joint filers who make less than $400,000 would receive $110 checks.

An estimated 2.7 million taxpayers would benefit from the refund in a statewide election year. The legislature would need to agree to the program and it’s unclear at the moment when the checks would arrive.

Ben Barnes, Malloy’s budget director, said taxpayers who receive the refund would not have to pay federal income tax on it because it’s being described as a sales and gas tax refund. Sales tax and gas taxes do not qualify as itemized deductions on federal income tax forms, so it’s like “you paid less sales tax or less gas tax,” he said.

“I’m proposing a refund because that’s the best way to give immediate relief to taxpayers,” Malloy said.

Republican House Minority Leader Lawrence Cafero, R-Norwalk, called the refund “typical of election-year tactics.”

“Anytime we are talking about giving tax revenues back to the people who earned them it is a good thing,’’ Cafero said. “But this proposed tax rebate is perhaps the least creative option.”

Last week, Republicans proposed speeding up restoration of the sales tax exemption on clothing and footwear and the tax exemption on over-the-counter drugs. They also proposed eliminating the special assessment businesses pay to the unemployment fund. All three proposals would use about $247 million in surplus funds.

Sen. Minority Leader John McKinney, R-Fairfield, who is running for governor, said “people and families across Connecticut don’t need one-time gimmicks, they need permanent tax relief.”

After a two-year, $2.6 billion tax increase in 2011, it’s the “height of hypocrisy” to think this refund program isn’t anything but a gimmick, McKinney said. And while he praised Malloy’s decision to use $100 million to pay down pension debt and contribute more money to the Rainy Day Fund, he thinks the proportions are wrong. He said more money should be used to pay down the pension debt, which is amortized, because the state is looking at a $2 billion deficit over the next two-year budget cycle.

Malloy said if he had more money in the Rainy Day Fund, which was depleted when he took office, then he would spend more money on paying down those obligations.

“Cause you’re not going to get a 7 to 8 percent return on any other payment,” he said. “Put $100 million into the pension obligation and it pays you instantly that kind of dividend —$330 million to be exact.”

Malloy dismissed the criticism anticipated by the Republicans.

“The Republicans are great,” Malloy said. “On Monday they deny that there is a surplus and on Wednesday they tell us how to spend it. It is really remarkable.”

Asked by a reporter if he was trying to bribe the voters, Malloy said emphatically, “Because I’m not — number one. Number two, because this is the best way to get this money to middle class families.”

The proposals Malloy made Thursday assume the state will end the year with a more than $500 million surplus. He said if that surplus grows then he believes the money should should go exclusively to the Rainy Day Fund and to paying down the pension obligations.

Malloy’s proposal also increases the maximum size of the Rainy Day Fund from a cap of 10 percent to 15 percent of state revenue, a position state Comptroller Kevin Lembo has been advocating.

Asked if the existence of a budget surplus means he overtaxed them in 2011 when he implemented a two-year $2.6 billion tax hike, Malloy said, “we’re all being overtaxed that’s why I’m calling for tax cuts and future tax cuts.”

The way to respond to the situation is to “put money in people’s pockets,” Malloy said. “And it has the added benefit of helping to improve the economy. So yeah, I think we pay too much taxes in Connecticut.”

The nonpartisan Office of Fiscal Analysis has predicted that starting in 2016 the state will be facing deficits of about $1 billion a year. Malloy said he’s aware of the predictions, but based on the rate of growth in the budget he doesn’t believe they will exist.

“If who’s ever governor stays to that average — which is about a 2.8 percent increase in spending, as opposed to by the way, historically, 7 percent — if you stay at 2.8 percent in expenditures and you see some continuation of growth on the revenue side there is no deficit,” Malloy said.

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(15) Comments

posted by: Commuter | January 30, 2014  1:25pm

Excellent proposal.

Sending a check to taxpayers is more than a proven campaign year tactic, it sends the message in terms that anyone can understand that things are indeed getting better for individuals and families.

The deposits into the rainy day fund strengthen that bulwark against externally-driven budget choices, increasing the predictability of the state’s fiscal course. And, no matter what the actual rate of return is over time, the $100 million investment in the pension fund captures significant cost savings.

The bond market and rating agencies will reward those investments, and the business community, too, can see that the administration is taking the steps it said it would toward a stable fiscal - and therefore tax - environment.

But the best part of this is the changes it will make to the disposition of future surpluses. This is the kind of structural change - building on the implementation of GAAP - that is challenging to explain to the average citizen, but is crucial to our long-term financial strength (in no small part because it is another thing the bond market and businesses want to see).

It commits the state to three specific uses of “excess” revenue going forward. No more spending money we don’t really have on pork and pet projects. No more partisan posturing like we saw last week from Senator McKinney and others.

Malloy continues to walk the talk.

posted by: Historian | January 30, 2014  1:28pm

There is a law outlawing bribing voters. Who is going to get the State’s Attorney to file charges?

posted by: robn | January 30, 2014  1:34pm

Someone earning $40K/yr, paying $1800 in taxes gets $55 back and so does someone earning $110K/yr, paying $5000 in taxes?

I hate to repeat the Republican accusations of “wealth distribution” but this is blatantly that.

Here’s a clue Mr Guv. Stop giving feel-good giveaways and pay down our exorbitant debt you’re partially responsible for.

posted by: Chien DeBerger | January 30, 2014  1:48pm

Wow Danny! You raise taxes in the state by 2 billion dollars , spend most of it on your cronies and give me $55.00 back? SWEET!

posted by: Chien DeBerger | January 30, 2014  1:55pm

Danny- One other question: Will I have to claim this magnanimous amount on my 2014 income tax return?

posted by: NoNonsense2014 | January 30, 2014  2:27pm

A $55 rebate check, oh happy day! Seriously, though, how do you spell “ridiculous”? (Ridiculous, r-e-b-a-t-e. Ridiculous. How did I do?)

posted by: justsayin | January 30, 2014  3:18pm

Shouldn’t we wait until the “surplus” is actually accounted for at years end before we give it away? This is another shoot first aim later tactic. Wait, can I say that in CT?

posted by: mookalaboona | January 30, 2014  3:47pm

Wow.  Now I can buy a day’s supply of groceries with my 55 dollars!  Or a few gallons of gas.  Malloy, you are really scraping.  You’re not going to buy anyone’s vote.  First of all, there is no surplus.  We have a huge deficit because everyone is leaving the state.  You need to take some “Common Core” tests in math because you are sadly lacking.

You can buy the corporate vote with your 110 million dollars to Bridgewater, and you 300 million dollars to Jackson Labs, but we the taxpayers are not going to fall for this ruse.

posted by: Just Saying | January 30, 2014  6:44pm

We borrow $750 million and up with a $500 million surplus. So we pay down the long term debt (pension obligations we should have funded years ago) we put part of the phony surplus aside for a rainy day when it is pouring debt right now and we give taxpayers a token tax rebate? What a fraud this governor is.

posted by: dano860 | January 30, 2014  8:02pm

POLITICAL PANDERING for VOTES.
Who do you think will want the $55 he plans to give you?
Whose votes will that money buy?
Where did this money come from? It wasn’t from a sustainable source. One time tax amnesty isn’t a revenue source!
There is no “rainy day fund” it’s a tax deferment plan.
Dannel, pay down our debt, don’t act as though you magically pulled this money out of thin air with one of your horrible ideas.

posted by: jim black | January 31, 2014  10:00am

There is no surplus of money, just fools.

posted by: Connfusion | January 31, 2014  10:27am

Only a nanny state snob would explain excessive taxation and political gimmick speak as good government. Speak to us Serfs, oh wise Commuter, what will our fortunes be in four years under the munificent Dannel if we are so lucky to have him re-elected?

posted by: Historian | January 31, 2014  1:33pm

Glad this check bit is recognized as “a proven campaign year tactic”.  As far as bonding agencies - the only factor in their miserable existences is to avoid a bond default recommendation - the rest is window dressing - especially in Ct - which they know can be Taxed even more due to the stupidity of CT voters. As long as we have the “Gold coast” kicking in Billions in taxable income the Democrats know they can raise taxes up to almost double and get away with it..

posted by: joemanc | January 31, 2014  2:23pm

This $55 refund will defray the moving costs of those looking to leave this overtaxed state.

posted by: StanMuzyk | February 3, 2014  3:11pm

It is ironic that Gov. Malloy had to come to Derby City Hall to kick off this gimmick—instead of offering some assistance to the state’s smallest and poorest city and Mayor Anita
Delgado. Malloy always appears to being in a constant reelection mode—at taxpayer expense.