Gov. Dannel P. Malloy plans to modify some of his budget proposals Thursday based on what he’s heard from taxpayers at the 17 town halls he’s held and closed door discussions with Democratic lawmakers on the budget writing committees.
Sources expect Malloy to make changes to some of his tax proposals, such as the income and property taxes, but said he won’t be changing the $1.5 billion in tax increases he pitched Feb. 16 when he released his budget proposal.
“We are very close to having a budget,“ Rep. Patricia Widlitz, co-chairwoman of the Finance, Revenue, and Bonding Committee, said Wednesday.
She refused to say if any of the proposed tax increases or elimination of tax exemptions have been taken off the table because she didn’t want to spoil what have been productive conversations with the Malloy administration.
Sources say Democrats were unhappy with elimination of the $500 property tax credit, which hits middle income earners the hardest. It was a topic of concern at the House Democratic caucus’ first meeting back in March. In the past Malloy has remained adamant about eliminating the credit saying it helps raise about $365 million in the first year of the budget.
Asked in February after a Bond Commission meeting how strongly he was willing to fight the legislature to maintain the elimination of the tax credit: “Pretty willing,” Malloy said.
A study from CT Voices for Children, a progressive policy group, suggested reducing the property tax credit from $500 to $350, instead of eliminating it, and increasing the income tax for the wealthiest residents to make up the revenue. They suggest this would smooth out the impact of Malloy‘s proposal on middle income earners.
In keeping with Malloy’s decision to benchmark Connecticut’s taxes to surrounding states they suggested boosting the top proposed income tax rate from 6.7 percent to 6.85 percent, which is the top rate in New York. They said this would raise an additional $40 million and reducing the property tax will only reduce revenues by about $177 million.
Sen. President Donald Williams said nothing has been decided 100 percent as to which revenue proposals will make it back into the budget.
“The governor’s proposed a very responsible framework for the budget, but everyone knows there will be adjustments, improvements, and I think the governor certainly is part of that process,” Williams said.
Malloy’s budget proposes expanding the number of income tax brackets from three to eight and raises the top rate from 6.5 percent to 6.7 percent. Malloy has said he’s concerned about making certain Connecticut remains competitive with surrounding states.
New York’s top income bracket will drop to 6.85 percent under the budget Gov. Andrew Cuomo just signed, but CT Voices for Children believes there’s still room for Connecticut to increase it a little further without driving the wealthy out.
“The needs of Connecticut’s residents have grown, but the revenues to meet those needs have declined,” Jamey Bell, executive director of CT Voices for Children, said Wednesday. “We need revenue solutions to address the gap between growing needs and reduced resources.“
Bell, a member of the Better Choices Coalition, said the coalition is advocating for expanding the brackets even further by increasing the top rate to 8.95 percent on income greater than $2 million.
Republican lawmakers say increasing income on the wealthiest residents will force millionaires to pack up and leave the state. They also say those residents are the ones with the resources to leave and most of the time they‘re the ones creating jobs in the state.
But Jon Shure, deputy director of the state fiscal project of the Center for Budget and Policy Priorities, said the picture Republicans paint is a myth.
“If you raise state income taxes for the wealthiest people the overwhelming majority of them will stay and you will get significant new revenue to meet public needs,” Shure said. “Tax them and they will flee sounds catchy. The problem is it’s just not true.”
“Can you just picture something from the Grapes of Wrath where these caravans of Lexus’s and BMW’s with cases of Perrier strapped to the roofs are leaving Connecticut because you told them they have to pay two or three cents more per dollar on their income,” Shure said. “It just doesn’t work that way.”
A recent study from Princeton confirmed that. The study from New Jersey found it lost $16 million from people leaving the state and those unwilling to locate there, but it gained $1 billion a year from the tax increase because a majority of those making more than $500,000 a year stayed.
He said people move for all kinds of reasons. Mostly for job or family reasons, but rarely do they move from state to state because of taxes.