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(Updated 3:42 p.m.) In an effort to break the state’s budget stalemate, Republican Gov. M. Jodi Rell announced Wednesday morning that she would support a millionaires tax as long as Democrats agreed to cut $520 million more in spending.

Rell said she will agree to increasing the income tax on individuals making $500,000 and families making $1 million from 5 percent to 6.5 percent. Under Rell’s latest proposal, the legislature will also have to agree to eliminate the estate tax, in addition, to reducing the sales tax from 6 percent to 5.5 percent.

“I would prefer not to have to offer this package,” Rell said. “I have been flexible, very flexible with taxes. Now they must do their part and cut spending.”

At a press conference Wednesday afternoon, the state’s two top Democratic leaders said they were encouraged by Rell’s proposal.

“We’re happy to see that she’s recognized the need to ask those who have a bit more to contribute to our deficit by including the millionaires tax,” Speaker of the House Chris Donovan said. “We think that will go a long way towards filling the gaps.”

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As far as the $520 million in additional cuts are concerned, Donovan said there will be cuts, but he can’t say exactly where they’ll be because the Office of Fiscal Analysis is still “crunching the numbers.”

Donovan called the proposed sales tax reduction from 6 percent to 5.5 percent “intriguing,” but “again we have to see where the numbers fit.”

Sen. President Donald Williams said its unclear at the moment how much these proposals reduce or increase the state’s revenue stream.

“We’re prepared to put a couple more cuts on the table, but what we have really been waiting for is movement from the governor on a progressive income tax that brings the wealthy to the table,” Williams said.

With a possible budget agreement on the horizon, Williams and Donovan decided to cancel Thursday’s special session, where they had planned to run a budget with or without the governor’s support.

If things “break the right way,” Donovan predicted they could have a budget agreement ready for a vote of the General Assembly by Friday at the earliest and no later than Sept. 1 at the latest. He said if Friday isn’t possible then they could work throughout the weekend and pass something early next week.

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The legislature’s top two Republican leaders, who have argued that it’s not necessary to raise taxes in order to close the $8.56 billion budget deficit, said there are things they like and things they don’t like about Rell’s proposal.

“I consider the governor’s package, a package. Not an a la cart menu,” House Minority Leader Lawrence Cafero said. He said his Democratic colleagues should not be looking at this package thinking they’re going to be able to “cherry pick” the proposals they like and ignore the parts they don’t.

That being said, “we’re concerned about the overall impact of the tax increases,” Sen. Minority Leader John McKinney said. “But I applaud her for trying to break this budget impasse.”

“Clearly the burden is now on the Democrat leaders,” McKinney said.

Republicans said they were impressed with the thoughtfulness of Rell’s proposal. They said the combination of lowering the sales tax and eliminating the estate tax will actually help create jobs and generate revenue for the state.

The House Democrats held a caucus Wednesday afternoon following the press conferences. Donovan said he would let them know as much as possible about Rell’s latest budget proposal.