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Finance Committee Lowers But Broadens Sales Tax, Increases Income Taxes

by | Apr 29, 2015 12:01pm () Comments | Commenting has expired | Share

Christine Stuart photo (Updated 3 p.m.) Broadening the sales tax base, implementing a 2 percent capital gains tax, and raising the personal income tax on the state’s wealthiest residents is how the legislature’s Democratic majority would balance the two-year, $40.6 billion spending plan proposed earlier this week by the Appropriations Committee.

According to draft documents, the Finance Committee plans to increase the top personal income tax rate on individuals who make $500,000 and married couples who make $1 million a year from 6.7 percent to 6.99 percent. The increase would bring in an additional $102.4 million in 2016 and $94.7 million in 2017.

The proposal also would establish a 2 percent tax on all capital gains income for individuals who make $500,000 and married couples who make $1 million. The establishment of the tax is expected to bring in an estimated $167.6 million in 2016 and $178 million in 2017.

The bill would also lower the sales tax rate from 6.35 percent to 5.85 percent effective Oct. 1, 2015, and it would reduce the sales tax again from 5.85 percent to 5.35 percent on July 1, 2016. The state would lose $252.7 million in revenue in the first year and $702.4 million in the second year. But it makes up for those losses by broadening the sales tax base by making more services taxable.

Documents prepared for the committee show the proposal will eliminate the sales tax exemptions on several services and clothing and footwear under $50. The committee expects to gain $136.8 million in 2016 and $142.6 million in 2017 by eliminating the sales tax exemption on clothing and footwear under $50. It also limits the sales tax free week in August by lowering the qualifying amount of the exemption from $300 to $100. It expects to save $1 million from the move.

As far as the new services are concerned, the bill would for the first time tax a number of services including services provided by Certified Public Accountants, architectural firms, private engineering firms, consultants, veterinarians, dry cleaners, advertising and marketing, and dozens of other businesses.

“We think a tax on services is counterproductive,” Mark Zampino, public affairs director for the Connecticut Society of Certified Public Accountants, said Wednesday. “A large part of this would impact business-to-business services.”

Zampino said there are only three other states that tax these types of services: New Mexico, South Dakota, and Hawaii.

“Taxing business-to-business services is a bad economic idea,” Zampino said Wednesday.

He said it’s also unfair that the legislature would single out Certified Public Accounts from other business service providers, such as attorneys or tax preparers.

But that’s not the only hit the business community takes in the proposal.

The bill would keep the 20 percent corporate tax surcharge that was supposed to sunset this year. It anticipates a revenue gain of $44 million this year and $75 million next year from the tax.

It also adopts an idea prompted by progressive groups and labor unions called combined reporting, which would require big, multi-state corporations to pay taxes on the revenue they earn in Connecticut, instead of allowing it to shift it to another state with a more favorable tax rate. The committee expects to see a revenue gain of $38.3 million in the first 18 months and $23.7 million in the next 12 months from the proposal. The estimates are based on similar tax treatment of corporations in Maryland.

The committee will authorize the Connecticut Lottery Corporation to establish the game of keno in the state. The game, which was approved by the legislature in 2013 and repealed in 2014 before it could get going, would bring in $13.6 million in revenue in the first year, and $30 million in revenue in the second year of the budget.

Rep. Jeffrey Berger, who co-chairs the committee, said it would authorize keno to be offered in bars, restaurants, and the off-track betting parlors.

The proposal was panned by Republican lawmakers who questioned most of the tax increases used to close a $1.3 billion deficit in 2016 and $1.4 billion deficit in 2017. The Democratic budget proposal approved Monday by the Appropriations Committee increases spending 4.6 percent in the first year, and 3.3 percent in the second year.

Sen. L Scott Frantz, R-Greenwich said Wednesday “it’s a sad day in Connecticut when we once again have to look at increasing taxes.”

He said many of the concepts included in the package have not received a public hearing, which means lawmakers didn’t get a chance to hear from the public about how they will be impacted.

He said many will be impacted in “significantly adverse ways.”

“There may be hundreds of people who will be put out of business as a result of some of these sales taxes on businesses and industries,” Frantz said.

Frantz said introducing a capital gains tax is going to have a chilling effect on the financial services industry, private equity, and hedge funds in the state. He said it will drive a large part of the tax base away from the state, “if they haven’t already left.”

“This I see as another turning point in the state of Connecticut,” Frantz said. “We can’t afford to do this to ourselves.”

The bill raises over $1 billion in taxes in 2016 and over $700 million in tax increases in 2017.

Sen John Fonfara, co-chairman of the Finance Committee, said he doesn’t believe there’s one person on the committee who relishes the need to raise more revenue, but somebody has to support the spending side of the budget.

“But when we look at who pays the bill currently,” Fonfara said. “It shows that the lowest end cumulatively, the lowest earners below $47,000 pay a full 20 percent of all taxes, fees, etc. to run this state.” That’s “by far the greatest of any category from top to bottom.”

He said it would be great if the state didn’t have an income tax, but Connecticut’s rate is below many of its neighboring states.

He said the entire package, which was approved 27-21 in a mostly party line vote, is balanced and fair.

But Democratic Gov. Dannel P. Malloy’s administration, which will now negotiate the budget with lawmakers behind closed-doors, disagrees.

“The tax plan put out today takes a very different approach. Simply put, it asks far too much of Connecticut’s middle class and small businesses,” Devon Puglia, Malloy’s spokesman, said Wednesday after the vote. “While the Governor appreciates the work of the Finance Committee and will review its budget in full, he believes strongly that tough choices are needed today in order to ensure a brighter tomorrow for everyday Connecticut families.”

Joe Brennan, president and CEO of the Connecticut Business and Industry Association, said he struggled to come up with the words to describe the enormity of the tax package and impact it would have on all of Connecticut, not just the business community.

“It goes so far beyond business,” Brennan said. “We are going down a path that is only going to make our problems worse.”

He said the total budget, which raises taxes and reinterprets the spending cap, is not sustainable and won’t bring in the revenues the state is counting upon because businesses and people, especially those at the top end of the income scale, are mobile.

“A lot of manufacturing companies have not been investing in their operations in Connecticut and have locations elsewhere,” Brennan said.

It would be easy for businesses like that to pack up and leave, he added.

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(16) Archived Comments

posted by: Noteworthy | April 29, 2015  1:29pm

Summing it all up: Make a little money, pay more taxes; make a lot of money - pay more taxes; own a company - pay more taxes via a “temporary” surcharge on your business, now pay more taxes permanently. And enjoy a new misery tax found in KENO. Well dumb, eh, I mean well done. And predictable.

posted by: cnj-david | April 29, 2015  2:47pm

So, will this be the impetus for more exodus?

We don’t cut spending, we increase taxes.

Despite Malloy’s promises to do otherwise.

Oh that’s right - that was before the election.

posted by: Biff Winnetka | April 29, 2015  2:54pm

HAHAHAHAHAHAHAHAHAHA!

“...the Finance Committee plans to increase the top personal income tax rate on individuals who make $500,000 and married couples who make $1 million a year from 6.7 percent to 6.99 percent. The increase would bring in an additional $102.4 million in 2016 and $94.7 million in 2017.” —-  If those affected taxpayers STAY in CT.  BIG ‘If”.

“The proposal also would establish a 2 percent tax on all capital gains income for individuals who make $500,000 and married couples who make $1 million. The establishment of the tax is expected to bring in an estimated $167.6 million in 2016 and $178 million in 2017.”
—-  IF those taxpayers remain in CT.

“We think a tax on services is counterproductive,” Mark Zampino, public affairs director for the Connecticut Society of Certified Public Accountants, said Wednesday.

“Zampino said there are only three other states that tax these types of services: New Mexico, South Dakota, and Hawaii.”
—-If it’s a BAD idea, CT is sure to embrace it.

“It also adopts an idea prompted by progressive groups and labor unions called combined reporting, which would require big, multi-state corporations to pay taxes on the revenue they earn in Connecticut, instead of allowing it to shift it to another state with a more favorable tax rate.”
—-No Problem, those businesses will simply shift their operations to those low tax states.  Problem solved.

“Keno” —-The budget savior.

This is so laughable.  The only thing this budget will guarantee is that CT will now DEFINITLY lose a Congressional seat in 2020 when the census bureau reports how many people have beat feet out of CT.

posted by: Biff Winnetka | April 29, 2015  2:57pm

Sen. John Fonfara and Rep. Jeff Berger…two clowns…on unicycles…up on the highwire…defying gravity…while they perform to their ringmasters orders.

posted by: MyOpinion | April 29, 2015  3:03pm

Lower than neighboring states is not a reason to raise taxes! Being more efficient in the way we spend our tax collections is the primary effort, and not raising taxes to meet expenditures. This state sucks at controlling spending, and the Democrats love to find always one more area to help people out with programs that are more wasteful than helpful. Raising the taxes on the wealthy will drive them out of the state.  Try raising taxes on items that wealthy people tend to buy.

posted by: dano860 | April 29, 2015  3:38pm

CNJ-David, Malloy tossed this into the laps of the weak and clueless. The legislators!
He promised “HE” wouldn’t raise taxes, not that the party of pandering wouldn’t.
MyOpinion, remember the “luxury” tax that was placed upon big ticket items like ‘yachts’? That single move killed the boat building industry in Ct and R.I.
R.I. has changed that and have now had a few crawl back out of the ashes.
We, the State, can’t continue to be a bottomless piggy bank for everything and everyone with a hand out begging.
We need true management, some real leadership running this mess. Otherwise we can look forward to more creative, unfair methods of revenue enhancement from the dreams the non responsive dolts under that dome in Hartford.

posted by: Bitcoinmillion1 | April 29, 2015  4:24pm

Bitcoinmillion1

Lulz at least they are finally projecting less activity.  I dont think they full understand what people like Peter Schiff and other Fairfield Co people are doing right now with tax shelters.  Their international man project in Puerto Rico will hit CT like no one ever thought.  It is happening now.  The good news is after this small, but necessary tax increase Ct will be turned into a beautiful national forrest.  Don’t fight taxes at all…they will do you good….in the end

posted by: StillRevolting | April 29, 2015  7:01pm

My favorite might be the vet bills. I wonder how much the yearly bill without the tax would be for hundred head of dairy cattle? I’m sure no one on the committee has a clue but, they’d all tell you they support Connecticut agriculture. Perhaps, it would go something like this for someone on a tight, fixed income in an already sad scenario. “Skippy, you’ve been a great friend for a long time now. I know you’re in constant pain and no longer enjoying life. I was going to take you to the vet to resolve that humanely but, it is either that or the light bill so hang tight, I’ll be right back with a big rock.” We should replace the gold dome with a circus tent.

posted by: Noteworthy | April 29, 2015  10:08pm

The sum total of all the new taxes is almost $2 billion. That’s a stunner…

posted by: ocoandasoc | April 30, 2015  12:49am

A $1.8 billion tax increase. That’s over $600 for every man, woman and child in the State. Makes you wonder how big the tax increase would have been if the Dems hadn’t promised no tax increases before the election. Once they “reinterpreted” the spending cap to give themselves the right to spend another billion or two of taxpayer money you had to know this was coming.
More businesses and residents will leave. More jobs will be lost. And the downward spiral will continue.
If only there could be a tax on legislative irresponsibility… the State’s financial problems would be over.

posted by: One and Done | April 30, 2015  7:08am

If the goal is to get high income earners and more businesses to leave the state, then this sounds like a perfect plan.

posted by: art vandelay | April 30, 2015  9:49am

art vandelay

Instead of lowering taxes to be competitive with neighboring states, why not lead the nation with the lowest taxes and most efficient government in all 50 states!

posted by: Biff Winnetka | April 30, 2015  10:24am

Just ordered this book on Amazon.

“The Official Snowbird’s Guide to Becoming a Florida Resident.”
by Dean Hanewinckel, Esq.

Time to eject.

posted by: Tessa Marquis | May 1, 2015  8:41am

This says it all

“A lot of manufacturing companies have not been investing in their operations in Connecticut and have locations elsewhere,” Brennan said.

If they are not investing in their businesses, the State is not getting any benefit from their being in CT.

They are waiting for us to give them more incentives and tax breaks. We should not consent to Corporations holding the state hostage.

Let’s test their soil before they leave. #OSHAfines #EPAfines #DEEPinvestigation

posted by: art vandelay | May 1, 2015  6:17pm

art vandelay

@Tessa Marquis,
Are you kidding?  “Let’s Test the Soil Before They Leave”.  Have you no concept that private industry is the backbone of this state?  Without the private sector, Connecticut would be a wasteland.  Government needs and should do everything possible to keep private sector jobs in this state.  The problem with Connecticut is that we keep voting socialist politicians into office who believe private sector company’s are destroying this nation.  Get a grip!

posted by: dano860 | May 2, 2015  10:28pm

Art, Tessa and her ilk are the reasons business is leaving the State, choosing to not locate here and not investing in themselves.
She would be proud of herself for shoving the knife in their backs as they leave though.
SS122, please toss in a twenty to cover a few of Toni Walkers constituents, they won’t do it for themselves.

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