As expected Republican Gov. M. Jodi Rell vetoed a bill that would have eliminated the business entity tax for 46,000 small businesses by creating a temporary tax on residents that earned Troubled Asset Relief Program bonuses.

“However well-intentioned, I cannot sign into law a bill that creates an instant budget deficit,” Rell said in a press release. “And while – like many people – I am outraged that any business that took a federal bailout would be paying out big bonuses to its executives, the law does not permit us to target individuals with punitive taxes.“

During the Senate floor debate on the bill, Sen. Majority Leader Martin Looney, D-New Haven, said the TARP bonus “surcharge” is entirely equitable because it provides relief for small businesses.

“This is a way of bringing attention to those businesses that need help in Connecticut,” Looney concluded.

But Rell assumed that the constitutionality of the surcharge or tax, which Attorney General Richard Blumenthal opined was “likely constitutional” would be challenged in court.

“Even if the TARP tax were to survive such a legal challenge, the court case would be long and expensive, adding to the burden on Connecticut’s already hard-pressed budget,” Rell said. “And given the state’s precarious financial condition, we would be taking chances we cannot afford to take if we were to spend the revenues from that tax until the court case was definitively resolved. All in all, this is simply not a bill I can support.”

Sen. President Donald Williams, D-Brooklyn, the main proponent of the bill, said he is disappointed in the veto.

“I am disappointed that Gov. Rell has decided to veto a bill that offered immediate tax relief to more than 46,000 small businesses across Connecticut,” said Williams. “Small businesses account for the vast majority of new jobs in Connecticut and this initiative would have offered help where it is needed most. Our plan to compensate for the tax cut by implementing a temporary surcharge on large Wall Street bank bonuses was fair and legally sound.”

While opinions on the legality of the tax vary, it’s unlikely the Democrat-controlled General Assembly will be able to override the veto.

The House voted 89 to 49 and the Senate voted 21 to 14 on the legislation. In order to override a veto the House would need 101 votes and the Senate would need 24 votes.

Click here to read Rell’s veto message.