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State Aid For Federal Aid

Senate Majority: Washington Not Doing Enough For Lower-Income Families, Small Business

By CHRISTOPHER KEATING, Capitol Bureau Chief

January 29, 2008

Saying a federal economic package doesn't do enough, state Senate Democrats are proposing a five-point economic-stimulus plan that would provide $250 in property tax relief for middle-class homeowners and $10 million to help senior citizens and lower-income families pay their fuel bills.

The draft plan, which will be presented to Republican Gov. M. Jodi Rell at a meeting today, also would help cash-strapped small-business owners and people struggling with sub-prime mortgages.

The package would use nearly all of the state's projected surplus of $260 million this fiscal year. The one-time property tax credit would benefit hundreds of thousands of taxpayers and would cost the state about $140 million. The credit is for the middle class, and no relief would go to married couples with annual incomes of $191,000 or more.

"We can put money in people's pockets in the next couple of months," said Derek Slap, a spokesman for the Senate Democrats. "Connecticut families don't have a surplus right now. It makes sense. It's one-time, so we're not tying ourselves into something that is fiscally questionable."

The Senate Democrats would also create a state earned income tax credit — a controversial proposal that Rell and Republicans have rejected in recent years. The earned income credit has been among the last items dropped in the budget negotiations for the past two legislative sessions. In both, Democrats dropped the tax credit in exchange for Republicans dropping proposed estate-tax cuts for the wealthy. As part of the compromise, legislators agreed last year to study the impact on both of the tax cuts.

The state earned income tax credit would be based on the federal credit and would apply to families earning up to nearly $40,000 per year. The credit is highly complicated and is based on a sliding scale that phases down as income increases. The maximum benefit in Connecticut would be $940 for a family with two children that earns less than $15,000 per year, and the credit would cost the state about $60 million per year.

A battle over the idea is expected because Republicans have repeatedly dismissed the credit for years as "a tax refund for people who do not pay federal taxes."

Rell's spokesman, Christopher Cooper, was cool to the concept Monday.

"The governor has said she's not going to propose any expensive new spending programs," Cooper said. "She would not be interested in seeing something that expensive being proposed."

On property-tax relief, Rell has called for a cap on local property taxes, but she remains flexible on how that would be accomplished and the level at which the cap would be set. She proposed a 3 percent cap last year, but she is flexible on that number this year, Cooper said.

"The governor is going to be very cautious with taxpayer dollars during the budget session," he said.

But Senate Republican leader John McKinney of Fairfield said Monday night that he supports the earned income credit because it can provide an economic boost in tough financial times.

"It was actually Ronald Reagan who was the champion of the federal earned income tax credit as a way to stimulate the economy," McKinney said. "Surpluses by their very nature are evidence that we are overtaxing people."

The third point of the Democrats' five-point plan calls for eliminating the $250 business-entity fee for small businesses for one year. The tax was instituted in 2002 to fill a budget gap during the tenure of then-Gov. John G. Rowland. Now, a bipartisan coalition is trying to eliminate it to provide relief for limited partnerships, limited-liability companies and so-called S corporations, among others. Overall, more than 118,000 Connecticut businesses are subject to the tax, including many companies with fewer than 50 employees.

Secretary of the State Susan Bysiewicz, whose office oversees the registration of the businesses, legislative Republicans and various chambers of commerce called for killing the tax earlier this month.

Some major businesses are registered as LLCs, but Slap said the Democrats mean to benefit small businesses that are struggling in the weakened economy.

Since the federal stimulus plan does not propose heating assistance, the fourth point of the plan calls for about $10 million in heating aid and air-conditioning. The money would be funneled through Operation Fuel, a well-known nonprofit service that has been helping families for about 30 years. At the federal level, Democrats such as U.S. Speaker of the House Nancy Pelosi wanted to increase the subsidies for low-income residents, but that concept was dropped in the final compromise plan.

The federal tax rebates, which still must be approved by the U.S. House and Senate, would be $1,200 for working couples, plus $300 per child. Since the federal rebates are based on income, a family earning $200,000 annually with three children, for example, would receive nothing.

Although the exact number of families that could be helped is still being determined, the state Senate Democrats also want mortgage relief for Connecticut families who are caught up in the subprime crisis that has led to skyrocketing monthly mortgages.

"People are really hurting," Slap said. "They're getting squeezed."