Rell’s New Plan: Tax Millionaires, Eliminate Inheritance Tax
http://blogs.courant.com/capitol_watch/2009/08/rells-new-plan-tax-millionaire.html
By Christopher Keating
on August 26, 2009 11:31 AM
In a dramatic change to break a budgetary logjam, Republican Gov. M. Jodi Rell offered a new budget plan Wednesday that would raise the state income tax on millionaires, eliminate the state’s inheritance tax, and cut the sales tax from the current 6 percent to 5.5 percent.
Rell’s move was a major breakthrough as Democratic legislators embraced the new plan as a framework toward a final deal that would end the bitter, months-long battle over taxing and spending that has left Connecticut as one of only two states without a budget.
In a sharp reversal from her stances since February, Rell would raise the state income tax to 6.5 percent on couples earning more than $1 million per year and individuals earning more than $500,000 per year. The current maximum rate is 5 percent.
While Rell’s move shocked some insiders, it was not the first time that she has proposed raising the state income tax. She proposed a hike several years ago in order to fund a massive increase in state spending on education. That plan, however, was unveiled in good economic times, and the state budget surplus kept rising so much that legislators and Rell decided that raising the state income tax was not necessary.
Democrats were immediately supportive of Rell’s concepts, and they canceled Thursday’s special session in which they had originally intended to vote on their own version of the budget. That is no longer necessary, and the Democrats will now work with Rell to reach a compromise budget that would likely come to a vote next week.
“Generally, we’re very encouraged by the governor’s proposal,” said House Speaker Christopher Donovan. “We see common ground that would serve as a basis for that [budget] agreement.”
Senate President Pro Tem Donald Williams, who has criticized Rell’s proposals in the past, said Rell’s support of the so-called millionaires’ tax was “a significant step” toward reaching a deal.
“I take it as a very positive sign,” Williams said.
Lawmakers also were intending to vote on borrowing more than $900 million to cover the deficit for the last fiscal year that ended on June 30, but that vote might not happen until Tuesday, September 1 – an important deadline for closing the books on the previous fiscal year.
The overall increase in the state income tax would be more than $1 billion over two years, and the tax increase would be retroactive to January 1, 2009. Rell’s budget chief, Robert Genuario, said that most of the people earning more than $1 million per year pay their taxes in quarterly installments, and the retroactive increase would not be an administrative nightmare.
The sales tax would be cut on everyone – from major corporations to the poorest citizens – from the current 6 percent to 5.5 percent. Citing an economic study, Rell said that the cut would create 8,300 jobs.
“This is a huge, huge boost to our economy,” Rell told reporters in her Capitol office.
As reported in The Hartford Courant on Wednesday, Rell would increase the cigarette tax to $3 per pack, up from the current $2 per pack. That increase would bring an additional $103 million to state coffers from smokers.
The Democrats have recently agreed to the cigarette increase, as well as Rell’s plans for a temporary, 10 percent surcharge on the corporate profits tax. Any corporations that do not make a profit would not owe any tax.
In return for the tax changes, Rell is asking the Democratic-controlled legislature to cut $520 million from their latest budget proposal last month.
“We need a state budget,” Rell said. “It is time to move negotiations forward, not inch-by-inch but with great strides toward a meaningful agreement.”
Rell made her announcement on short notice – and Democrats had not yet seen all the details of her latest plan. The proposal marks Rell’s fourth budget since she unveiled a no-tax-increase budget in February.
Democrats have held a series of news conferences around the state to demonstrate their opposition to Rell’s proposed cuts. The latest event was Tuesday under the Capitol’s south portico that featured children carrying multi-colored balloons as Donovan and Williams decried Rell’s proposed cuts for Head Start, pre-school, and the 62 family resource centers that provide child care and other services in public school buildings around the state.
Democrats in the House of Representatives were expected to discuss the issue during a caucus Wednesday in Hartford.
The Connecticut Working Families Party, known for its liberal stances, said Rell’s compromise was not enough.
“The public clearly supports making our taxes more progressive, and at long last Governor Rell is starting to move in that direction,” said Jon Green, the party’s director. “But it still is not defensible to demand deep service cuts in healthcare and education while safeguarding the inheritance of trust funders.”
While Rell’s office said she would be raising taxes by a net total of $710 million over two years, Senate Democratic spokesman Derek Slap said the total included various “sin” taxes that had already been proposed by Rell. As such, he calculated that Rell’s new, net increased taxes that were offered Wednesday were slightly more than $300 million when the two sides are trying to close an estimated gap of about $850 million.
“She is not meeting us halfway,” Slap said. “Her proposal does not meet Democrats half way.”
