Lawmakers expressed concerns Tuesday about the impact of the proposed budget’s $1.2 billion in tax increases over the next two years. But they did little to change it.
What has changed in the last 24 hours is this — the first year’s proposed tax increase dropped from $720 million to $670.5 million, but it still includes $282 million in increased taxes on businesses and $237.8 million on the middle class.
Lawmakers spent most of Tuesday behind closed doors airing their concerns privately about the two-year, $40.3 billion budget, but in the end the package they will vote on wasn’t much different than the document that drew public objections from three iconic Connecticut companies on Monday.
Democratic lawmakers in consultation with Gov. Dannel P. Malloy made two small changes to the tax package. They reduced the computer and data processing tax from 3 percent to 2 percent in the first year, but increased it to 3 percent again in the second year. They also added a 25-cent increase in the cigarette tax in each of the next two years. It will bring the tax on a pack of cigarettes up to $3.90 in 2017.
As of 10:30 p.m. Tuesday, debate on the budget had yet to begin.
Joe Brennan, president and CEO of the Connecticut Business and Industry Association, said his organization opposed all of the business tax hikes when Malloy unveiled them back in February, and did so even more vociferously in April. He said the legislature needs to look hard at ways it can save money and spend less.
Brennan said his organization has been doing everything it can to convey the gravity of the situation to legislators, but for some reason that message seems to have fallen on deaf ears. Meanwhile, while the threats and comments from GE, Aetna, and Travelers may have garnered headlines, they appear to have done little to sway majority Democrats.
The latest company to express their opposition to the package was Boehringer Ingelheim. The pharmaceutical company with a subsidiary in Ridgefield said the proposed tax package will “stifle innovation, especially research and development of critical medicines.”
The tax package the House planned to vote on, possibly sometime late Tuesday or early Wednesday, would:
• reduce the amount of losses a company could apply to its income tax liability;
• reduce the amount of tax credits a company could use;
• continue a 20-percent corporate surcharge that had been scheduled to sunset this year, and;
• require unitary reporting, which would impact how multi-state companies calculate their income tax liability and would, in general, require them to pay more taxes.
However, the business community wasn’t alone Tuesday in their disappointment with the status of budget negotiations.
Sick of hearing about how corporations won’t be able to bring in bigger profits, organizations that represent some of Connecticut’s neediest residents pushed back against the business community’s narrative.
“None of us want to pay more taxes, but in considering the spending plan for the next two fiscal years, it is important that legislators and the public consider the reason increased revenue is needed: to pay for programs that support some of the state’s most vulnerable and needy individuals who might otherwise visit emergency rooms and police lock-ups, and live on our streets,” Brunilda Feraj, senior public policy specialist for the Connecticut Community Providers Association, said.
Feraj continued: “Fortune 500 companies like GE, Travelers, and Aetna have located their corporate headquarters in Connecticut in part because of the quality of life. Connecticut is a great place to live and raise a family.”
While critical services in the budget will continue to receive funding, almost all of the social service programs were cut. The budget reduces the general fund by $121.6 million.
The middle class will see a tax hike as well in the form of less property and sales tax relief. The proposal will keep the property tax credit at $300 in the first year and $200 in the second year and will phase it out faster, while reducing the number of property taxpayers who can claim it. Married couples earning up to $100,500 can claim the credit, but the budget lowers the qualifying income to $70,500.
The budget also eliminates the sales tax exemption on clothing and footwear under $50. The elimination of the exemption will bring in an estimated $136.8 million in the first year, and $146 million in the second year.