(Updated) Gov. Dannel P. Malloy’s $1.5 billion tax package seems to have upset everyone from pilots to auto dealers, real estate agents to municipalities, and even the film industry—just to name a few.
They packed a hearing room at the Legislative Office Building Monday to tell the Finance, Revenue, and Bonding Committee, exactly what they thought of the elimination of several tax exemptions on airplanes, boats, and commercial vehicles.
But before the public had an opportunity to talk about what the tax increases would mean for their industries lawmakers grilled Malloy’s Budget Secretary Ben Barnes on several of the proposals.
Sen. Scott Frantz, R-Greenwich, wanted to know whether the tax proposals that impact the auto, boating, and aviation industry were analyzed to see if their imposition would, as some industry advocates have said, cause businesses to move outside of the state.
When the budget was being crafted Barnes said they paid careful attention to making sure when it came to the income and sales tax that Connecticut remained competitive with surrounding states. He said he understands some people in certain industries feel aggrieved by the elimination of the tax exemptions, but he doesn’t believe it will completely drive the industries out of the state.
“We’re taking their protestations under advisement,” Barnes said.
He said Malloy and the administration haven’t come to the conclusion yet that what advocates of those specific industries describe as an exodus from their industries and a loss of jobs, will actually happen.
“If significant drop offs in economic activity occur we will take that into consideration,” Barnes said.
But he said the truth of the matter probably lies somewhere in between what advocates for the industry are saying and what will actually happen should the legislature approve the increases.
Rep. Vincent Candelora, R-North Branford, expressed concern with the coupon tax.
Barnes said Connecticut already implemented that tax back before 1998 and there’s some misconceptions about how it would be applied.
He said the tax does not apply to discounts. So if you went to Macy’s and bought a purse that was 20 percent off, the tax would apply to the discounted price of the purse. He said if you bring a coupon into a store, which requires a certain amount of money to be taken off the price of an item, then the proposed tax applies to the price before the coupon is applied.
“On the spending side, you’ve done a lot to preserve government,” Candelora said. “But I think this tax package is really going to break the backs of the private sector.”
Barnes said he appreciates the comments and feedback, but believes the budget presented with $1.5 billion in taxes and $1.76 billion in spending cuts represents fundamental reform. He said he appreciates the comments about the impact tax increases may or may not have, but asserted that cutting taxes won’t help jump start the economy anymore than raising them will.
Sen. Andrew Roraback, R-Goshen, asked Barnes if he believes like the auto industry does that the trade-in tax will cause dealerships to lose 735 employees.
“They’re true in that they are believed to be true,” Barnes said. “I do not believe they are correct.”
Barnes said the one group that did well in Malloy’s budget was municipalities and even some of them are upset, but the increase in sales tax revenue does not offset state’s payment for their inability to collect property taxes on manufacturing machinery and equipment.
Malloy himself admitted last week that his formula for eliminating the manufacturing machinery and equipment funding was unfair to some communities and he’d be taking a look at how to make whole the impacted municipalities.
Barnes said he would look at changing the formula this year to help the impacted towns, but the municipalities should not rely on that money because it’s not good public policy to tax manufacturing equipment.
In addition to the angry pilots and mechanics, there were angry cosmetic surgeons at the hearing Monday who said taxing cosmetic surgery will hit the middle class and could never be audited.
Dr. Patrick Felice told the committee in written testimony that contrary to popular belief 86 percent of patients are working women and many whom plan on getting cosmetic surgery within the next two years have a household income of $30,000 to $90,000 a year. Most fall between $30,000 and $60,000 per year, with just 10 percent closer to $90,000.
He said when New Jersey imposed a similar tax it caused “surgical flight,“ where patients traveled to nearby states to have their surgery. He said that will have a direct impact on small businesses and the potential revenue gained from the tax.
The argument is similar to the ones made by the aviation industry and auto dealers.
The exemption, which garnered the most attention from the Finance Committee co-chairs Monday was the 20 mill rate property tax on boats and sales tax on marine repairs and storage.
Both Sen. Eileen Daily, D-Westbrook, and Rep. Patricia Widlitz, D-Guilford, come from shoreline communities, which would be hit hard by the new tax structure.
Daily said she asked Rhode Island lawmakers if they would be interested in implementing a similar property tax rate in their state, so Connecticut doesn’t see an exodus of boats on its shores. Daily said her Rhode Island colleagues declined.
She said the reason Connecticut got rid of its property tax on boats was to stop of the hemorrhaging to Rhode Island. She said if she can come up with additional revenue to replace that tax proposal she will.