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Tax-Cut Ideas Get The Ax

Both Sides Give Up Some Pet Proposals

June 20, 2007
By CHRISTOPHER KEATING, Capitol Bureau Chief

Despite a current state surplus of $917 million and prospects for a continued healthy revenue stream, taxpayers will see virtually no relief this year under terms of the tentative budget deal reached this week.

In fact, the only major tax proposal in a tentative agreement reached Monday night between Republican Gov. M. Jodi Rell and legislators is a 33 percent increase in the state's cigarette tax to $2 per pack, up from $1.51.

Nearly all major tax-cut proposals have been dropped in the budget compromise reached between Rell and the Democratic leaders who control both chambers of the legislature.

Democrats gave up two of their highest priorities: enacting a progressive income tax on the rich and increasing the property-tax credit for the middle class.

Rell walked away from proposals to eliminate the personal property tax on cars and to enact a 3 percent cap on annual increases in local property taxes. Rell and Republican legislators also gave up on eliminating the 25-cents-per-gallon gasoline tax from Memorial Day through Labor Day and phasing out the estate tax on estates valued at more than $2 million.

None of those proposals is in the budget agreement that could be ratified later this week by the House of Representatives and the Senate.

"I think we both gave a little and got a little," Rell said Tuesday. "When not everyone's happy, I believe everyone has won."

Democrats were unhappy about not being able to cut taxes for the middle class, particularly after saying for months that their plan would reduce taxes for 95 percent of taxpayers. Republicans countered that the Democrats' numbers were bogus, pointing to a nonpartisan report on the plan that said 58 percent of taxpayers would see a cut.

Democrats also dropped their proposal to join an interstate compact that would have allowed Connecticut to charge sales tax for items sold on the Internet. As part of the complicated arrangement, the state also would have been forced to start charging sales tax on clothing items under $50 and on funeral expenses under $2,500.

Still, relief was evident. House Speaker James Amann of Milford, who has referred to the governor as "Mother Rell" and compared her to Little Orphan Annie, praised Rell for making the budget deal possible.

Negotiators will return to the bargaining table today to discuss a possible all-or-nothing agreement that would involve competing tax-cut proposals: a Democratic plan to create a state earned-income tax credit and a Republican plan to eliminate the "cliff" in the estate tax for those who die with more than $2 million.

Democrats have been fighting for years to create the earned-income credit, which would reduce the taxes of lower-income people and would be modeled after the federal credit. It could provide a maximum credit of about $900 annually for a family. A single mother with two or more children could earn as much as $36,000 per year and still be eligible for a reduced credit.

Republicans hope to eliminate the estate-tax "cliff," in which tax rates skyrocket when a person dies with as little as $1 over a particular threshold. For example, when a person dies with an estate valued at $1.99 million, there would be no estate tax because the first $2 million is tax-free. But $1 above the $2 million threshold would mean a $100,000 tax bill for the estate.

"We don't have a solution to that yet," Rell said when asked about the two tax proposals. "You can't propose a tax break if you're not able to pay for it."

Amann said both ideas are off the table at the moment but would be discussed today as a package. Either both will be enacted or both will be rejected.

Amann credited Rell with making the budget breakthrough during daylong talks Monday at the governor's mansion in Hartford. Republican and Democratic negotiators had been unable to reach agreement, and the Democrats asked repeatedly for Rell to become personally involved.

For weeks, Rell avoided face-to-face talks and instead was represented by her chief budget negotiator, Robert Genuario.

But that changed Monday, which Amann described as "a very, very productive day having the governor at the table."

Saying Rell did "a great job," Amann added that "for nine weeks, there was no movement on these issues. Having her in the room was extremely helpful."

House Republican leader Lawrence Cafero of Norwalk agreed, saying Rell made the deal possible in talks that stretched over about nine hours Monday.

"The last 2 yards are the toughest and, without question, the governor took it over the goal line," Cafero said. "There's no question about it."

Cafero said Rell and the Democrats were talking about higher taxes when House Republicans held a press conference in the Legislative Office Building in April to say the budget could be balanced without any tax increases.

Democrats scoffed at the time, saying the Republican plan was not even worth consideration. Soon after, a Quinnipiac University poll showed that the Republican plan was the most popular of the three ideas, and the no-tax idea started gaining momentum.

"We feel we literally changed the debate on this budget," Cafero said. "We're very proud that we changed the debate."

Many of the precise details in the two-year budget were not available Tuesday. For instance, lawmakers were unable to provide the exact increase in the budget in the first year, other than to say it was about 8 percent to 9 percent.

The new Senate Republican leader, John McKinney of Fairfield, predicted that the budget will gain wide support among lawmakers and the public.

"Since day one of the session, Senate Republicans have been saying that we can make important investments in education, health care and energy reform in a fiscally responsible way and without raising taxes," McKinney said. "This budget accomplishes that."

Amann said he hopes the House will vote on the budget as soon as Friday, but some lawmakers said that is an ambitious schedule.