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Malloy's Car Tax Plan Criticized

By CHRISTOPHER KEATING

February 17, 2013

When Republican Gov. M. Jodi Rell proposed eliminating the local property tax on automobiles in 2006, then-Stamford Mayor Dannel P. Malloy and other Democrats criticized it as a gimmick.

It "has the ring of a bait-and-switch all over it,'' Malloy told The Courant in February 2006. Then-state Sen. Kevin Sullivan said Rell's plan was "utterly disingenuous and non-workable.''

Now, Gov. Malloy has proposed his own plan to partially eliminate the car tax — and he says it is "very different from Jodi Rell's'' proposal.

A key difference is that the tax would remain in place on cars valued at more than $28,500; Rell's proposal was a complete elimination, meaning high-rollers would own their Rolls Royces, Bentleys, and Ferraris tax free.

Despite differences in the plans, the response has been similar: widespread criticism. Facing the potential loss of $500 million per year statewide, mayors and first selectmen say Malloy's plan is flawed because there is no mechanism for towns and cities to recover the revenue without raising taxes or cutting spending in their towns.

"There's no way I can find $10 million in my budget to pay for this," said Danbury Mayor Mark Boughton. "Most municipalities are going to have to raise taxes to offset this revenue.''

Boughton, a Republican who ran for lieutenant governor on the ticket with Tom Foley in 2010 against Malloy, said he likes cutting taxes under normal circumstances.

"The problem with this is it was poorly planned, poorly thought out,'' Boughton said. "The reality is residents will end up paying more. It particularly hits those living in the cities who might be renting and might not own a car because the cost will be passed along to the landlord, who will pass it to the tenant.''

At first, the idea sounds good because taxpayers hear they will get a tax cut, mayors said, but that's money that needs to be made up in town budgets and in some towns and cities it's a large number.

The biggest losers under the plan would be the largest cities, which have the most cars and also some of the highest tax rates. Stamford collects an estimated $20.8 million from car taxes, while Hartford collects $19.1 million and Bridgeport $15.4 million, according to statistics from the Connecticut Conference of Municipalities for the 2012 fiscal year. Waterbury, West Hartford, and New Haven all collect about $15 million each.

New Haven Mayor John DeStefano said he should have supported Rell's proposal, which was made in 2006 and 2007.

"She was going to refund the difference to the municipalities,'' said DeStefano, who defeated Malloy in the 2006 Democratic gubernatorial primary before losing to Rell in the general election. "And I was opposed to it at the time. You know, in retrospect ... it may have been a mistake. I mean, I think there are reasons to eliminate the car tax.''

Malloy agreed, calling it "the most hated and unfair tax in Connecticut'' because it disproportionately taxes people on the same property. For example, in Hartford — which has one of the state's highest tax rates — residents pay more than four times the tax that Greenwich residents pay on the same car. Malloy's budget director, Ben Barnes, said he pays $400 on his Volkswagen Jetta in Stratford; the same car would cost $1,400 in taxes in Hartford.

"To have that kind of discrepancy [from town to town] is patently unfair,'' Malloy told reporters. "If we did not tax cars, no one would propose the system we have now.''

The towns would not lose every penny because Malloy's proposal would maintain the tax on cars with a market value of more than $28,500. Local officials, however, could not immediately provide a breakdown on how many towns have lower-priced and higher-priced cars. But they noted that cities like New Britain, Enfield, and Bristol have a far larger percentage of cars that would be tax-exempt than upscale communities like Greenwich, New Canaan, and Darien.

"I have not met one person — not one person — who said it's a good idea as presented,'' said House Republican leader Larry Cafero of Norwalk. "Not one. It's so disingenuous. Who's fooling who?''

Despite opposition from mayors, Boughton predicted that there will be some form of tax relief on cars in the Democrat-controlled legislature as lawmakers look forward to the 2014 elections.

"I think the legislature is itching to do something about the car tax,'' Boughton said. "It might be the governor is trying to provide a way for some cover for all the tax increases and fee increases. The problem with that is he's playing poker with our money.''

Malloy and his budget team are not backing away from the car-tax cut at this point. Instead, he turned the issue back on the mayors.

"I've had to make some really tough decisions as governor in the prior budget and in this biennium budget,'' Malloy said. "They're going to have to make some tough decisions. This process will work itself out.''

Malloy cited Waterbury as an example, adding that his plan would save the average working-class family "a lot of money.''

Both Malloy and his budget director strongly defend the car tax legislation.

"We believe that taxing cars is the most unfair portion of the property tax system, which has been widely criticized as unfair and regressive for decades,'' Barnes said. "We think, by getting rid of this most regressive and most unfair portion, that we improve the fairness overall of our tax system. It will cause some adjustment in the short run but will not result in higher taxes unless local governments choose to spend more money.

"Frankly, if we end up giving working families a tax break at the expense of their absentee landlords in urban areas, we can live with that,'' Barnes said. "I don't think that it will directly result in rents changing.''

Malloy's chief of staff, Mark Ojakian, said the tax cut "really helps people who are struggling the most."

But state Rep. Stephen Dargan, a conservative Democrat from West Haven and a Malloy supporter, said the reaction to the car tax proposal has been strange.

"I've never seen so much outcry for a tax that was going to be reduced or eliminated,'' Dargan said. "It amazes me. They're calling Malloy a liberal who is raising taxes. He proposes eliminating a tax that he thinks is somewhat regressive, and I'm getting letters against it from constituents. It's crazy. We raise taxes, and people get mad at you. Now, we're trying to do away with a tax, and people get mad at you.''

Some lawmakers have raised questions about the equity of the tax cut. While a middle-class worker driving a $5,000 car in New Britain would see the tax eliminated, hedge fund billionaire Paul Tudor Jones would see tax cuts on all 19 cars that his family has registered in Greenwich, according to public records.

James Finley, chief executive officer of the Connecticut Conference of Municipalities, who has studied the issue through the years, said the car tax has been a long-running problem as governors try to ease the tax burden. He said that motorists might initially like the idea, but he fears that it would backfire.

"Everybody has been frustrated with the motor vehicle tax, but nobody has found a way to reform it,'' Finley said. "The governor's approach is a simplistic approach just to eliminate it. In the end, they're going to end up paying for it with higher property taxes on their home. It's really transferring the burden of a regressive tax and concentrating it on two classes of property — residential and business.''