Christine Stuart photo

As budget negotiations continued at the capitol Wednesday, Gov. Dannel P. Malloy told reporters that legislative leaders need to accept “real cuts” and “real tax changes” as the special session to implement the budget approaches.

The $40.3 billion state budget the General Assembly approved June 3 already was the product of negotiations between the legislature’s Democratic majority and Malloy, but as soon as it was passed the public outcry from the business community was too much to ignore. Lawmakers quickly sought to distance themselves from the deal and Malloy proposed a reduction of $223.5 million to the tax package, telling the legislature he would find an equal amount in spending cuts himself if they didn’t want the responsibility of doing it themselves.

“I think what has to transpire is real,” Malloy said. “There has to be real cuts, real changes, and real tax changes.”

He said the legislature has the right to caucus and have discussions. Malloy said the budget is still historic for the changes it makes to the property tax structure and the investments it makes to transportation, but “I also would say very clearly that I’ve laid out what I think needs to happen.”

He said he doesn’t think it’s about additional tax revenue.

“I don’t think this should be about taxes,” Malloy said. “I think it should be about the changes and keeping some of the ideas I’ve put out.” He said he’s been very specific about what he wants to see accomplished in a special session.

Malloy announced on June 12 that he wanted to keep the computer data processing tax at 1 percent, delay unitary reporting until January 1, 2016, eliminate the sales tax on car washes and parking, cap the tax on Internet downloads at 1 percent, and cap the amount of credits companies can use to offset their tax burden at 55 percent.

“I expect those will be accomplished,” Malloy said.

House Democrats met behind closed doors Tuesday to discuss the proposal Malloy made and they discussed some ideas of their own, including alternative revenues that would allow them to maintain funding for social services.

One of those alternatives could be electronic cigarettes, according to sources.

The budget already includes a $75 application fee and $400 annual licensing fee for electronic cigarette dealers. But some have privately commented on the need to tax this new industry. It’s unclear how seriously they are considering the idea.

There are about 50 e-cigarette stores in Connecticut and that doesn’t count the gas stations and convenience stores that also sell them.

Taxes on traditional cigarettes were increased 50 cents over two years in the budget and the American Heart Association/American Stroke Association would like to see it increased by $1, but most lawmakers believe they may have already taxed smokers enough.

The American Heart Association and the American Stroke Association are also advocating for a penny per ounce excise tax on sugary drinks.

House Speaker Brendan Sharkey declined Tuesday to offer specifics about what proposals were being discussed by his caucus. It’s unclear what the package will need to look like in order to garner the 76 votes he would need to get it passed. Sharkey said his team continues to meet daily with Senate Democrats and Malloy’s staff to reach a compromise on the budget changes.

“We continue to have productive discussions with the governor and the senate on potential budget revisions, and are now working with our caucus to address the concerns our members have heard from their constituents and the business community,” Sharkey said Wednesday in a statement.

Senate President Martin Looney, D-New Haven, was the first to suggest that revenue alternatives were on the table when he emerged last Friday from a meeting with Malloy.

A spokesman for Looney said there were discussions about several sources of revenue, but declined to offer or confirm any specifics.