HARTFORD, CT — Connecticut lawmakers are trying to find the silver lining in the tax package passed by Congress and signed by President Donald Trump before Christmas.
But will it impact January revenue estimates?
Already facing what Democratic Gov. Dannel P. Malloy believes is a $222.5 million deficit, lawmakers have decided to wait until after the January 15 revenue numbers are released before deciding how to close it.
Senate President Martin Looney, D-New Haven, said Christmas sales might help boost the bottom line, but it’s too soon to say what the revenue estimates have in store for lawmakers.
His colleague in the House went a little further.
House Speaker Joe Aresimowicz, D-Berlin, said if taxpayers make estimated quarterly income tax payments to the state then they probably tried to get an extra payment made in 2017.
“That’s what I would have done,” Aresimowicz said. “I don’t have liability like some of the folks in the state who would have done that.”
That means there could be a small, one-time boost in revenue to the state from these largely self-employed or wealthy individuals who pre-paid the first quarter of their estimated tax bill for 2018 in the final weeks of 2017.
Also, he said if you look at Connecticut’s tax forms, it uses the adjusted gross income from the federal return as the basis for its taxing scheme. That means there could be more revenue coming to the state because the adjusted gross income will be higher for many folks unable to claim deductions the federal tax bill eliminated.
“We might see a bump in the AGI, which means a bump in our taxes,” Aresimowicz said. “That’s the only benefit we have.”
States like Connecticut, New York, New Jersey, and California don’t benefit from the tax package because they are higher tax states and the new federal tax laws only allow taxpayers to deduct up to $10,000 in state and local taxes.
“We’re looking at holding public hearings on some of the ideas that would could do,” Aresimowicz said.
House Minority Leader Themis Klarides, R-Derby, said the federal tax law is actually a good thing because it will force the state of Connecticut to reconsider how it raises revenues.
“If 40 years of Democrat-controlled legislatures in this state didn’t put us in the position we’re in maybe that tax bill wouldn’t be affecting us in the way that it is,” Klarides said.
However, she doesn’t see any short-term benefit. Klarides said she fears the deficit will be even bigger after the revenue numbers are released on Jan. 15.
The full impact of the new federal tax changes won’t go into effect until 2018.
Meanwhile, Connecticut is facing what seems like a yawning $222.5 million deficit.
Over the past seven years, even with tax increases in various categories, revenues have fallen short on an annual basis in all but two years, 2011 and 2013.
Since 2015, lawmakers have struggled mightily with trying to figure out why revenues were falling short and if raising revenues will cause further erosion of the tax base because wealthier individuals will flee the state.
The latest U.S. Census Bureau numbers show more than 22,000 resident left the state between July 1, 2016 and July 1, 2017, and the state population grew by 499 residents.
Looney said it’s a good thing that the new federal tax law didn’t change the capital gains rate. However, with the stock market performing as well as it has lately investors seem to be leaving their investments in the market. Connecticut only benefits when investors take those investments.
“At some point there will be a market correction,” Looney said. “I anticipate at some point prior to that people who are savvy investors might decide to sell and take some of their gains and we could see some surge in capital gains when that happens.”
Over the next year, Aresimowicz believes the new federal tax law won’t hinder a discussion about raising income taxes on Connecticut’s wealthiest individuals, who will benefit to a greater degree under the new federal tax bill.
“Members of my caucus have expressed a desire to revisit taxes, especially on some of our more wealthy individuals that just saw a substantial tax decrease at the federal level,” Aresimowicz said.
He said he doesn’t know what the proposals will look like, but he anticipates the Finance, Revenue, and Bonding Committee will talk about it when the new session convenes in February.
“The Connecticut budget is now a living breathing document that has to be examined,” Aresimowicz said. “There is no more off-season at the Connecticut legislature.”