Battle Of Tax Cuts As Session Opens Wednesday

HARTFORD — The battle over tax cuts and rebates will take center stage Wednesday when the 2014 General Assembly session opens in a year when the governor and the entire legislature are up for reelection.

Like Republican John G. Rowland in 1998, Democrat Dannel P. Malloy is an incumbent first-term governor offering tax rebates as he faces a reelection fight this fall.

Political considerations are expected to dominate the session as Malloy faces an already-bitter election campaign against multiple Republicans, including state Senate Republican leader John McKinney of Fairfield.

House Republicans took the first pre-session step by calling for tax cuts as the state's projected budget surplus has now jumped to more than $500 million for the current fiscal year that ends June 30. But they have also urged caution because the state's fiscal recovery has been slow, and the tax cuts are designed to provide one-time, short-term relief.

Just days after the Republican proposal, Malloy proposed his own tax rebates of $55 per person and $110 for couples earning less than $400,000 per year. Since the rebates would be structured as sales and gasoline tax refunds, they would not be taxable — unlike an income tax rebate. Malloy also is earmarking $100 million for the state's $28.2 billion pension fund, which has been underfunded by the legislature as obligations have been pushed off into the future in order to help balance the state budget.

In addition, Malloy and the Republican leaders agree on a plan to stop charging the state's 6.35 percent sales tax on non-prescription drugs like allergy medications and also on clothing items costing less than $50. Malloy's overall plan would provide more than $250 million in refunds and relief over two years.

With Democrats controlling the state House and Senate, much of the governor's budget proposals are likely to win approval in an election year when Malloy has eyes on a tight race. The Democrats have a 98-53 advantage in the House and 21-14 majority in the Senate, with one seat to be filled in a special election in New Haven on Feb. 25.

Both privately and publicly, Malloy has been saying recently that good things are finally starting to happen for the first time in years.

"I asked for shared sacrifice,'' Malloy told reporters at the state Capitol. "I want to share the good times — the better times. They're not good times, the better times.''

But McKinney said the proposed rebates are "one-time gimmicks'' that must be analyzed in a broader context at a time when he says residents need permanent tax relief. "This one-time election-year rebate simply does not cut it."

Agreement On Rainy Day Fund

While the tax rebate proposal grabbed the headlines, lawmakers said there is more bipartisan agreement on using surplus money to boost the state's "rainy day fund'' for fiscal emergencies and for paying down long-term debt. The projected state surplus of $505 million, which has grown significantly in recent months, is based on the estimates of non-partisan legislative analysts.

Malloy's plan calls for using $250 million of the surplus for the rainy day fund and $100 million to bolster pensions, which are similar to Republican plans from the past. House Speaker J. Brendan Sharkey was cautious on the Republican tax-cut plans, but he is a strong proponent of long-term debt reduction. He said the rebates will "provide some immediate relief for people without impacting future budgets."

Senate majority leader Martin Looney, a New Haven Democrat, said the rebates will help low and middle-income residents as $155 million will be quickly injected into the economy.

''This is money that will be spent locally and stimulate our economy,'' Looney said. "At the same time, the governor's plan works to address Connecticut's long-term fiscal position."

Malloy also is calling for exempting 50 percent of public school teachers' pensions from the state income tax, which would save them about $23 million per year. Malloy said his recent moves on the pension and delaying a highly controversial teacher evaluation were not political, but critics say Malloy is trying to bolster the traditional Democratic base of teachers and their families before the election.

Greenwich business executive Tom Foley, who is seeking a rematch against Malloy after losing in 2010 in Connecticut's closest gubernatorial race in more than 50 years, says Malloy is touting a "phony election-year surplus'' that is filled with one-shot revenues, including $175 million in a one-time, record-breaking tax amnesty program.

In addition, Republicans say the state cannot expect to duplicate the huge collection of capital gains taxes from 2013.

Jobs, School Security

Besides the tax issues, legislators will work on a variety of other measures, ranging from job stimulation to school security improvements. Malloy will propose setting aside $10 million in an ongoing program that has already helped 604 schools to purchase bulletproof glass, surveillance cameras, electric locks and other items to improve security following the slayings of 20 students and six female educators at the Sandy Hook Elementary School in Newtown in December 2012.