Proposals To Raise Sales Tax, Increase Tax Rate On Wealthy Bring Little Consensus

There is little consensus among Democrats on various controversial budget proposals released Thursday.

As deadlines quickly approach for two legislative committees, lawmakers continued to discuss their options, including raising the sales tax and taxing the state's highest earners at a higher rate.

"There's a pretty broad diversity of opinion" among lawmakers about how to tackle the state deficit, according to the co-chairman of the finance committee, Jason Rojas.

"There are some who understand the need for spending reductions, others are concerned about the impact of the reductions we've already made," the Democrat from East Hartford said Friday.

One proposal released this week calls for hiking the sales tax to 6.99 percent, up from the current 6.35 percent. Another bill calls for increasing the maximum rate of the state income tax to 7.49 percent on the state's highest earners, up from the current maximum of 6.99 percent.

The proposals drew concern from Gov. Dannel P. Malloy who declined to say whether he would veto increases in the sales tax and the state income tax, but added they were not his first choices in trying to close the state's projected deficit of $1.7 billion in the next fiscal year.

"Too much thought is going into how to raise additional money and too little thought going into how do we live within our proximate means," Malloy told reporters at the state Capitol.

Malloy did not call for raising the sales tax or the income tax in his budget, but the Democrat-controlled finance committee will be holding public hearings Tuesday on both controversial ideas, among many others.

The budget-writing appropriations committee and the tax-writing finance committee both have deadlines next week that will help shape the budget. The final negotiations with the governor are not expected to conclude until at least June.

Democrats on the finance committee met behind closed doors Friday, but they did not reach a consensus. They refused to make predictions on which proposals might become law.

"Everything's being looked at," Sen. Steve Cassano of Manchester said. "But we need pretty much unanimous support, and we're not close to getting unanimous support on anything." 

He added that Democrats are planning two more caucuses in an attempt to agree on a plan.

"We're trying to think out of the box, trying to find a way we can have a balanced budget that will be acceptable," Cassano said. "Remember, both houses are very close. ... We need to have a budget that everybody can agree to. Politically in this building, that doesn't seem to be the way things happen."

Both Rojas and his fellow Democratic co-chair Sen. John Fonfara said they are concerned about increasing the income tax, but noted there is value in having hearings on the various revenue-generating proposals.

House Republican Leader Themis Klarides expressed disappointment at the tax proposals and ripped the Democratic majority in the legislature for "irresponsible budgeting."

"We might as well rewind back to 2011 and 2015," she said, referring to two significant tax increases. 

Klarides said Republicans are readying their own no-tax-increase budget proposal, but she declined to provide details Friday.

Instead of hikes, the GOP plan would include cost-savings and "structural changes" to state government to close the deficit, including hiring nonprofit providers instead of higher-paid state workers to provide social services, and capping spending on long-term capital projects that need approval from the State Bond Commission.

"We're in a very, very dire situation," Klarides said. "It's not going to be easy. We're going to have cuts."

Municipalities React

Cities and towns are also scrambling to get their local budgets approved, but officials have complained that they don't know how much money they will receive in state aid because the state budget remains in flux.

West Hartford Town Manager Ron Van Winkle said one proposal that would lead to a dramatic change in local taxes — to allow municipalities to tax properties at 100 percent of the true value instead of 70 percent — is "meaningless" for towns and wouldn't help.

West Hartford's budget is scheduled to go to a council vote on Tuesday night.

"I don't know how they're going to do this because we set a mill rate on Tuesday and when we set our mill rate on Tuesday, we can't change it, it's done," Van Winkle said.

Middletown Mayor Daniel Drew, a possible 2018 Democratic candidate for governor, said the city is watching for a budget proposal that doesn't force the common council to raise taxes or cut services.

"I want to see enough money to cover our share of state aid to make sure the people of Middletown receive adequate payment for the subsidies [of state property and hospitals] they provide here," Drew said.

Drew said the state would be wise to keep social programs funded, which costs money but keeps communities stable for the future. He also said proposals to raise taxes for the highest earners should be considered.

Businesses Concerned

"Connecticut has been going down the wrong path for years," said Charles Sears, president of Dri-Air Industries Inc., an East Windsor manufacturer of equipment for the plastics industry, employing 26 workers. "This is just one more wrong turn."

If the legislature and Malloy ultimately agree to raise taxes, the impact would extend beyond a company's finances, he said.

"It winds up being a psychological thing. You get so discouraged," he said.

Higher taxes would force businesses to forgo spending for new equipment or raise salaries, Sears said. Tax revenue already generated by businesses and money spent for payroll supplies "should be worth something to these people. They want to add more cost to this."

John Rosenau, vice president and chief operating officer of Moneco Advisors, a registered investment advisory firm in Fairfield, said business clients are concerned about rising state income taxes and what the impact could be on hiring.

Some taxpayers in the highest brackets are considering leaving Connecticut because of an "increased burden," he said.

"I don't think the state has a good handle on how to manage this problem," he said. "I just don't have a lot of confidence it will be resolved favorably. It's hard to pass those increased costs any more."

Courant staff writers Stephen Singer, Shawn Beals and Mikaela Porter contributed to this report.

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