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Lamont’s budget: No income tax increase, but tolls and expansion of sales tax on the table

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In his first budget address today, Gov. Ned Lamont presented a two-year, $43 billion budget that he said he believed represented structural reform for a sustainable future. While it includes no income tax increases, it does rely on other means of income – including expanding the sales tax to include tax return preparation and accounting services – and leaves open the possibility of installing electronic tolls to pay for repairs to and maintenance of the state’s infrastructure.

Lamont’s proposal would increase the current $20.8 billion budget to $21.2 billion in the first year and $21.9 billion in the second year, which ends on June 30, 2021. If passed by the General Assembly, the budget would go into effect on July 1.

“Today, I am presenting you a budget which gives us the best chance to get this state growing again,” Lamont said in his address to the General Assembly. “Connecticut has been a jobs laggard for many years, which depresses opportunity and hits our budget every year.

“If we had grown jobs at the same rate as other states, we would be talking about how to invest our surplus or cut taxes,” he continued. “Instead we are staring down the barrel of a $3.7 billion deficit over the new two-year budget cycle.

“I will not allow this budget to be another scene from Groundhog Day,” Lamont went on, “where I come to you year-after-year hat-in-hand lamenting the fact that we still haven’t addressed our structural deficits.

“The fiscal crisis before us is not just a short-term hole in the budget,” he said. “We are digging that hole deeper by $400 million to $500 million annually, due to fixed costs such as pensions, state employee health care and bonded debt – all growing faster than our economy. Most of these fixed costs pay for the past rather than investing in our future.”

Among the governor’s proposed changes are the refinancing of payments into the Teachers’ Retirement System payments – which would include municipalities that pay their teachers higher rates paying more into the retirement fund over a three-year period – and of payments into the State Employee Pension System, two regularly cited sources of Connecticut’s present fiscal woes.

“The state employee plan still represents a large share of the overall budget and accelerates state payments by $100 million dollars a year – an unacceptably high cost which would either force draconian cuts to needed services, or large tax increases,” Lamont said. “Working with the treasurer and our friends in labor, we hope to smooth out the payments in both pension systems, so our annual contribution is a lower percentage of our budget over the next generation.”

Lamont is also seeking to reimburse health care providers, including hospitals, up to a maximum rate for state employees and retirees.

As previously reported, the governor is further seeking to reduce long-term debt service payments and potentially save the state as much as $2 billion over the next decade. Between 2012 and 2019, the state averaged about $1.59 billion worth of bond authorizations per year. Lamont’s proposed budget would significantly scale that back, bringing annual bond authorizations to $960 million, a reduction of nearly 40 percent.

The proposal does not continue to divert the car sales tax to the Special Transportation Fund beyond current levels. Instead, he is seeking to fund infrastructure projects through various revenue and savings initiatives, which could include electronic tolls within the next four years.

Lamont’s budget has two tolling scenarios – truck-only and cars and trucks. The proposal would not raise the gas tax and would include discounts for Connecticut EZ-Pass users and frequent drivers. The governor estimates that out-of-state drivers could provide over 40 percent of the state’s tolling revenue.

Lamont is also looking to “modernize” the sales tax, in part by expanding it to include tax return preparation and accounting services – something the Connecticut Society of Certified Public Accountants objected to, saying it would put residents in the position of “having to pay a tax on paying their taxes.”

“Individuals who engage a CPA for their tax return preparation do so in order to comply with a tax code that is difficult to understand,” said CTCPA Executive Director Bonnie Stewart. Proposing to tax people for their voluntary compliance with such a tax code “adds proverbial ‘insult to injury,’” she added, saying her group would urge the General Assembly to reject the proviso.

The state income tax would not be increased, partly to attract new investments by consumers and businesses alike, and groceries would not be taxed; the business entity tax would also be eliminated; and the property tax credit would be restored to all eligible filers.

“Our current sales tax is designed for a Sears Roebuck economy driven by over-the-counter sales,” Lamont said. “Today we live in an Amazon economy which is driven by e-commerce, digital downloads and consumer services.

“My sales tax reform would broaden the base so that digital goods are treated equally and more significantly that we are capturing a growing segment of the economy,” he continued. “For example, movie theaters charge a tax, and Netflix should be treated the same. Under our budget proposal, consumer-oriented services will no longer be tax exempt. For example, why do you have to pay a tax on manicures, but not when you get a haircut?

“Expansion of the base helps to make the sales tax more robust, fairer and raises the revenue we need to get our budget into balance,” Lamont said. “I have been forewarned, every tax expenditure has a strong lobby behind it and the pushback will be ferocious.”

Lamont is also seeking a paid family and medical leave program as well as a $15 minimum wage.

To streamline government and make it more efficient, the budget proposes an investment in technology and IT personnel to modernize and digitize state government. According to his figures, moving transactions from manual to online can reduce costs by 75 percent.

The governor also asked businesses to follow in the steps of Travelers and Stanley Black & Decker, which have agreed to offer their own loan forgiveness programs, “to help the next generation of talent repay their student loans and save for their futures.”

“We are going to do this together,” Lamont concluded. “A budget, on time, borne of a chilly February afternoon, completed in time to enjoy a warm spring day and in time for our mayors and first selectmen, superintendents, residents and businesses alike to plan for a fresh start. Now let’s get to work.”

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