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Democratic Plan Calls For $1.8 Billion In New Taxes

Christopher Keating

July 31, 2009

In another attempt to solve the state budget crisis, two key legislative committees approved a new Democratic budget proposal Thursday that would raise taxes by $1.8 billion and hike spending by more than $700 million over two years.

Although Democrats said that the plan was a solid proposal to close the state's huge deficit during the worst recession in decades, Republicans countered that the measure raised taxes too much and did not cut spending enough.

The two-year, $37.8 billion Democratic plan is an updated version of the Democratic-written budget that was passed in late June and vetoed by Republican Gov. M. Jodi Rell. The new plan is similar to the earlier version and would increase the state income tax on couples earning more than $500,000 annually and raise the state's cigarette tax by 75 cents a pack as of January 1, 2010. Income taxes would increase by about $1.2 billion over two years, while corporate taxes would increase by about $300 million in various categories. In addition, there would be a temporary, three-year, 30 percent surcharge on the estate tax currently paid by the survivors of those who leave an estate worth more than $2 million - essentially pushing the highest rate to 20.8 percent.

A non-smoking couple that earns less than $500,000 annually and has an estate worth less than $2 million would see no tax increases under the plan. Republicans countered that the budget cannot be balanced on the backs of chain-smoking millionaires.

All sides agreed that the versions passed Thursday would not become law, but they also agreed that the two sides were inching closer to a deal. The final agreement will probably come through a combination of raising taxes, cutting spending and borrowing money.

For seven months, Rell and the legislature have been locked in a battle as they struggle over how much to raise taxes. But the two sides are "considerably closer than we've been since January," said Rep. Cameron Staples, a New Haven Democrat who is co-chairman of the tax-writing committee.

The appropriations committee approved the spending side of the budget Thursday by a vote of 30-12, with 16 legislators absent on a warm July afternoon. The finance committee approved the tax side 32-11, with 13 legislators absent.

Although Republicans ripped the proposed tax increases, Sen. Andrew Maynard, D-Stonington, countered that Connecticut was simply proposing what most other states in the nation have already done. Overall, 37 states have raised taxes this year, and another 10 states raised taxes last year, he said.

"I don't think we should be bullied into believing ... this is detrimental to the state's economy," Maynard told his colleagues at the state Capitol complex.

Democrats have been talking this week about eliminating the problem-plagued Department of Motor Vehicles, but the potential savings are deemed to be in the future and were not included in the plans discussed Thursday.

Compared to the bill vetoed by Rell several weeks ago, Democrats reduced the amount of tax and fee increases by more than $500 million. The corporate surcharge would increase by 15 percent, rather than the 25 percent level that had been proposed in the vetoed bill. The highest level on the state income tax - for couples earning more than $750,000 a year - would be 7 percent, rather than the previous level of 7.5 percent.

One of the bottom lines was that the legislature - despite the rhetoric about cuts - will be spending more in the current fiscal year than in the previous year, said Sen. Andrew Roraback, R-Goshen. Republicans rejected the legislative nomenclature regarding the "current services" budget and said there is no reason to be spending more from year to year at a time of deep economic recession.

"To me, that phenomenon is indefensible," Roraback said. "This package goes over the top in terms of burden on Connecticut families and businesses."

The overall budget, which includes the general fund, will increase by $266.7 million in the current fiscal year when compared to last year, according to the legislature's nonpartisan fiscal office. The budget will increase by another $444.9 million in the second year, said Geary Maher, the office's director.

In a spirited defense of the Democratic budget, Sen. Toni Harp of New Haven told colleagues the debate with with Republicans taught her something. "I learned it's not good to eat seed corn," Harp said. "It's a new saying for me."

She noted that the Democratic proposal says that a couple earning more than $600,000 a year - or $12,000 a week - would pay only an additional $20 a week under the tax increase plan. She noted that poor families in New Haven cannot fathom earning that much, adding, "Twelve thousand a week is unthought of in my district, where people earn $12,000 a year."

Despite Republican complaints, the Democratic budget includes the following cuts over a two-year period: $40 million reduced from the business-friendly Connecticut Development Authority and Connecticut Innovations Inc.; $20 million from the medical malpractice account at the UConn Health Center in Farmington; $20 million from the Tobacco and Health Trust Fund; $17 million from the Citizens Election Fund that pays for public financing of election campaigns; and $6 million from the Capital City Economic Development Authority, which oversaw the construction of the convention center in Hartford.