Gov. Dannel P. Malloy included at least two tax breaks in his budget proposal that will appeal to the general public. The first is the elimination of the motor vehicle tax and second is the return of the sales tax exemption on clothing and footwear.
Malloy eliminated the sales tax credit for clothing and footwear priced over $50 during his first budget proposal in 2011 when he increased taxes by $2.6 billion. This year’s budget doesn’t raise any new taxes even though it extends at least three that were scheduled to expire at the end of the fiscal year.
The tax exemption on clothes will be phased back in on purchases up to $25 in the first year, and up to $50 in the second year of the budget. It will cost the state about $55.5 million in revenue over the next two years.
The governor called the renewed sales tax exemption part of a broader strategy to provide tax relief for middle- and working-class families, as well as the working poor. The strategy also included eliminating the property tax on more than 90 percent of the state’s motor vehicles.
“Let’s make it happen. Let’s provide relief for working people across Connecticut. Relief that they will feel,” Malloy said.
The proposal to renew the sales tax exemption is unlikely to get much pushback from Republicans in the General Assembly. Senate Minority Leader John McKinney said they never wanted it to go away in the first place.
“Look, we opposed increasing the sales tax on clothing under $50, so restoring it is something we support,” he said.
In addition to helping consumers, Tim Phelan, president of the Connecticut Retail Merchants Association, said restoring the exemption helps the bottom line of state’s clothing retailers.
Phelan said clothing stores felt the loss of the exemption especially since nearby states have far more attractive tax environments for purchasing clothes. Just north of Connecticut, consumers enjoy an exemption up to $175. In Rhode Island there’s no tax on clothes at all unless they are specially designed athletic clothes.
“We didn’t want to lose it in the first place,” Phelan said. “If we can reinstate it and get it back to where we were, I think that’s a laudable goal.”
However, while eliminating the property tax on motor vehicles assessed at up to $20,000 may be popular with many, it means municipalities will lose about $560 million in revenue.
“I think the governor deserves a lot of credit for putting it on the table today and we’ll work out those details as we go,” House Speaker Brendan Sharkey said Wednesday after Malloy’s budget address.
Sen. Martin Looney pointed out that the car tax elimination is actually more progressive than previous proposals calling for a statewide motor vehicle tax because it impacts middle and working class taxpayers who drive cars worth less than $20,000.
Rep. Patricia Widlitz, D-Guilford, said she expects people will be pleased not to have to pay a tax on their automobiles.
A 2003 Blue Ribbon Commission on property tax burdens concluded that Connecticut’s motor vehicle tax is “viewed as especially unfair because residents in different communities pay vastly different taxes on the same property. This system encourages some Connecticut residents to register motor vehicles in other lower-tax municipalities or even out-of-state, causing significant local revenue losses and administrative difficulties.”
Former Gov. M. Jodi Rell attempted to eliminate the car tax back in 2006. Someone even came up with some clever bumper stickers and one of her staffers suggested creating a mascot named “Car Tax Charlie” to hound Democratic lawmakers who weren’t sold on the idea.
The idea was eventually scrapped.