Democratic lawmakers on the Finance, Revenue, and Bonding Committee met quietly this past Sunday to begin discussing possible revenue solutions for Connecticut’s budget woes.
The committee, which only has control over the revenue side of the budget, isn’t expected to finish its part of the budget proposal until later this month. Finance Committee Co-Chairwoman Rep. Pat Widlitz said Monday that the caucus met because it wanted to discuss a variety of ideas without distractions, judgment, or the waiting press corps.
Sources say discussions included lowering the sales tax but eliminating many exemptions, and increasing the income tax on the state’s wealthiest residents. Gov. Dannel P. Malloy’s budget continues several taxes expected to sunset in June, but it doesn’t increase the income tax or expand the items subject to the sales tax.
It’s unclear how much each of the proposals would raise in revenues, since they are still under discussion.
Widlitz declined to confirm or deny that either of those two options were being seriously discussed but she did say lawmakers are exploring their options.
She did say there is a desire among some of the members to increase income taxes on the state’s wealthiest residents, but that “I’m not supportive of raising taxes unless there appears to be no other options at the end of this session.”
She said the Democratic caucus is very conscious of encouraging economic growth and balancing that with the state’s need to generate revenue.
Following the second largest tax increase in the state’s history back in 2011 there isn’t much of an appetite in the General Assembly to increase taxes on anyone, but lawmakers will need to find enough money to support state spending, which increases 9.7 percent under Malloy’s budget proposal.
Sen. L. Scott Frantz, R-Greenwich, said if the Democrats on the Finance Committee want to head in the direction of increasing taxes and believe it’s in their best interest to do so—they will lose taxpayers.
“It will have a reverse impact and they will start to lose their tax base, if they move in this direction,” Frantz said.
Frantz, who represents some of the wealthier communities in the state, said there are people “constantly sitting on the fence and waiting for one more tax to send them away.”
He said that’s what happened in 2011 when Malloy raised taxes and it will happen again if that’s the direction Democratic lawmakers are headed.
Edward Lampert, one of Frantz’s constituents, packed up his $9 billion private investment fund ESL Investments and moved it to Florida last June.
Frantz said the legislature’s Appropriations Committee, which is in charge of the spending side of the budget, has to be willing to cut. He said there’s not enough revenue to afford all of the state government some want to have.
While that’s an issue still under debate, Democratic leadership seems to agree with Frantz when it comes to raising new revenues through tax hikes.
“I think tax increases should be an absolute last resort and I’m not in favor of them this year,” House Speaker Brendan Sharkey, D-Hamden, said Monday. “ Though, in this environment I don’t think we can rule anything out.”
Meanwhile, the idea of lowering the sales tax from its 6.35 percent and getting rid of some of the exemptions may be an interesting idea, but it’s unlikely to receive widespread support.
A 2012 Office of Fiscal Analysis report examines the number of exemptions to the sales tax. The exemptions are numerous and includes food, wheelchairs, hearing aids, prescription medicines, incontinence pads, diabetes supplies, heating oil, newspaper and magazine sales, caskets, vegetable seeds, firearm safety devices, bike helmets, campground rentals, and the list goes on.
All of these exemptions add up to hundreds of millions of dollars the state is foregoing each year in revenues. Each has its own constituency, so while it may sound like a good idea to lower the sales tax and eliminate the exemptions, lawmakers said it won’t be a popular idea with many groups.