Gov. M. Jodi Rell backed off her pledge for no new taxes, proposing a three-year surcharge on corporate taxes in an effort to raise $391 million in new revenue for the state and break a budget impasse with Democrats in the Connecticut General Assembly who submitted their own proposals.
The dueling budgets were followed by a war of words between Rell and Democratic leaders, with Rell stating Democrats would saddle taxpayers with unaffordable costs, and Connecticut Senate President Donald Williams Jr. lambasting Rell for refusing to consider new taxes sooner.
“Finally, at the end of July, we”™re seeing the truth from Gov. Rell in terms of the depth of the problem,” Williams said. “Too bad that didn”™t happen in January when it should have happened.”
The Assembly”™s appropriations committee passed what it termed a “sleek” spending proposal that lawmakers said strips more than $250 million in spending from their previous budget goals, but which keeps in place hikes in income taxes on taxpayers earning at least $500,000, a proposal some have said effectively soaks small businesses that use individual forms to pay their business income taxes.
The Democrat proposal would also create a 30 percent tax over three years on estates bequeathed to heirs.
Rell said she will not sign the Democrat budget proposal into law.
“Their proposals are unsustainable and they are unaffordable,” Rell said. “They cut spending by just three tenths of one percent. They raise taxes by $1.8 billion. The people of our state cannot afford that and I will not support that, and I will not sign it into law. The budget I am offering, I think and I believe, seeks a compromise.”
State Sen. Martin Looney of New Haven defended the Democrats”™ new plan.
Â
“Our proposal would make the income tax more progressive by providing for a slight increase on incomes over $500,000,” Looney said. “This is a very modest increase: what it means is that for someone making $600,000 a year, which is about $12,000 per week of income, it would be an increase in their tax liability of $20 on $12,000 worth of income, and most of that would be offset by an increased deduction on their federal income tax ”¦ This is a very moderate proposal to fund essential services in this state, and what we need to recognize (is) that in bad times as well as good there are certain essential core services that need to be maintained.”
Â
Rell said her budget, the third she has submitted to the Assembly, would shrink the state budget by 1.3 percent in the current 2010 fiscal year that began July 1, then increase spending 1.2 percent in fiscal 2011. She asked Democrats to join her in negotiations beginning Aug. 4.
Rell proposed slapping a 10 percent surcharge on the current corporate tax rate of 9.25 percent, saying it would funnel $141 million in new revenue into the state in fiscal 2010 and 2011. The state last hiked corporate taxes between 2003 and 2006, when the surcharge ranged between 20 percent and 25 percent; if Rell”™s plan becomes law, by fiscal 2011 corporations would have seen a “temporary” rate increase in six of the 10 most recent income years.
Rell also proposed raising $10 million by applying a separate, “nexus” tax on corporations that have no physical presence in the state, but which have an “economic presence” by shipping products to Connecticut or selling services.
The tax on cigarettes would increase from $2 to $3 a pack. Rell”™s plan would raise the tax on tins of snuff from 40 cents to 55 cents; and would raise the tax on cigars and chewing tobacco from 20 percent of their wholesale price to 27.5 percent. Combined, the tobacco hikes would result in $232 million in new revenue over two years, according to Rell”™s estimates.
Rell”™s plan would raise the tax on alcoholic beverages 10 percent, which would pour another $8 million into the state”™s coffers.
