In what may seem to cynics like another attempt to win back the support of school teachers, Gov. Dannel P. Malloy proposed exempting 50 percent of teachers’ pensions from state income tax.
The proposal will cost the state $23.1 million in 2015 and $23.7 million in 2016.
Malloy said it’s been something he’s been wanting to do since his first run for governor, but the state’s fiscal condition didn’t allow it until now.
“This is an item I’ve wanted to do since 2006 when I first met with a group of retirees and realized they were treated so unfairly,” Malloy said.
He pointed out that teachers do not receive Social Security, so their pension is generally their only form of income. But most states with an income tax apply the levy to teachers’ pensions. There are only five states that don’t tax teacher pension income, according to this report compiled by the Office of Legislative Research.
Tom Singleton, president of the Association of Retired Teachers of Connecticut, said he thinks Malloy is “pretty clever in doing this because studies show that the more we take from teachers the more apt they are to move away. They like the warm weather in Florida.”
He said the money will stay in the state and benefit both the individual teacher and the economy.
Malloy upset teachers across the state when he told them in his 2012 budget address that, “Basically the only thing you have to do is show up for four years. Do that, and tenure is yours.”
In addition to exempting half a teacher’s pension from state income tax, Malloy proposed exempting over-the-counter medication from sales tax, a two-day state park fee holiday, exempting municipal health care plans from insurance premiums, and extending an angel investor tax credit. The proposals total about $51.5 million in 2015 and $52.9 million in 2016.
Angelo DeFazio of Arrow Pharmacies in Hartford said that two years ago when the state taxed over-the-counter medications for the first time, he received “quite a tongue-lashing at the register when people had to dip back into their wallets to make that payment.”
DeFazio said the decision to reinstate the exemption was a pleasant surprise.
Elizabeth Gara, executive director of the Council of Small Towns, was equally surprised. She said getting rid of the premium tax was at the top of her members list. She said it’s a large burden for smaller communities that can’t self-insure.
It will cost the state about $8.7 million in the first year and $9 million in the second year.
The money from these proposals are coming from what Malloy anticipates will be increased revenues.
“We are seeing revenue growth. We are meeting targets. We are exceeding targets,” Malloy said. On the spending side, Malloy said he’s kept spending at 2.8 percent and plans to continue to do that.
“I asked for shared sacrifice. I want to share the good times, the better times. They’re not good times. The better times,” Malloy said.
A spokesman for the House Republicans said these proposals are all recurring expenses and will add to what legislative analysts are predicting will be a $1.1 billion deficit in 2016.
Pat O’Neil, a spokesman for the House Republican caucus, said the $247 million in tax relief put forth last week by Republicans was paid for and didn’t add to any future deficit.
“It’s not clear to me how they are going to pay for this,” O’Neil said. “They have not defined how they are going to pay for this.”
Malloy Spokesman Andrew Doba chuckled at O’Neil’s comment and wondered if he was referring to the same Republicans who proposed a plan paid for “with a surplus they deny even exists.”
Sen. Minority Leader John McKinney, who is running for governor, invoked Eminem in his statement on the proposal, asking “Will the real Dan Malloy please stand up?”
“Three years ago, Governor Malloy rejected Republican ideas and instead chose to raise the income tax, the sales tax, the property tax and the gas tax, to name a few,” McKinney said. “Today, nearly 40 percent of Connecticut residents are on the brink of financial calamity, homeless shelters are overflowing, and families and businesses are struggling to pay their bills. That is shameful.”