HARTFORD, CT — Gov. Ned Lamont’s first two-year budget proposal will include taxes on sugary beverages, plastic bags, liquor bottles, legal services, interior design, real estate, veterinarian services, accounting services, digital downloads, home renovations, winter boat storage, over-the-counter drugs, and newspaper and magazine sales.
The budget Lamont proposed to a joint session of the General Assembly at noon Wednesday includes projected revenue increases of $1.28 billion in the first year and $1.76 billion in the second year. Of those totals, revenue from “new” taxes — mostly from sales tax on items that were previously exempted — will be $253.5 million in 2020 and $651.5 million in 2021.
Lamont contends that 80 percent of the revenue changes in 2020 and over 62 percent of the revenue changes in 2021 continue current policies or undo “unrealistic tax cut promises.”
Overall spending in Lamont’s proposal will increase 1.7 percent in the first year and 3.4 percent in the second year.
The governor was tasked with presenting a budget that closes a $1.5 billion deficit in the first year, and a $2 billion deficit in the second year.
On the revenue side, the budget assumes the state would raise $163.1 million in 2021 from a 1.5-cent-per-ounce sugary beverage tax and $30.2 million in 2020 from a 10-cent surcharge on plastic bags.
Lamont’s proposal won’t include an increase in the income tax, which has been raised five times over the past 12 years. And it won’t include an across-the-board increase in the sales tax rate.
Lamont also feels strongly that the $2 billion in the Rainy Day Fund should not be used to pay for ongoing operating expenses.
If the legislature goes along with the tax on sugary beverages, Connecticut would be the first state to approve such a tax. Similar proposals have been approved by cities, but not states.
Ryan Drajewicz, Lamont’s chief of staff, said Sunday that he understands there will be people upset about proposals like the sugary beverage tax and the 10-cent plastic bag fee, but he maintained that neither was about revenue generation.
“This isn’t about generating revenue this is about changing behavior. Behavior that leads to healthier lives and a better environment,” Drajewicz said.
The American Beverage Association believes there’s a better way to achieve the results sought by the sugary beverage tax.
“Today, 50 percent of all beverages sold contain zero sugar,” said William M. Dermody Jr., a spokesman for the industry organization. “There are also better ways to fund budget priorities without raising taxes on people who can least afford it.”
Lamont’s budget would also raise about $4.9 million in 2020 from a 25-cent deposit on wine and liquor bottles and a 5-cent deposit on “nips,” the small liquor bottles that are a common litter item along the state’s streets and highways.
The expansion of the 6.35-percent sales tax to include things like legal and accounting services would bring in $292 million in 2020 and $505 million in 2021.
Since 1950, expenditures on services have grown from 39 percent to 69 percent of personal consumption, which has led to a significant reduction in the sales tax base. The Lamont administration would eliminate those exemptions and bring the tax code into the 21st century by extending the sales tax broadly to services, which make up a growing share of the economy.
The Connecticut Society of Certified Public Accountants said essentially taxing services like accounting services is a tax on paying taxes.
“The notion of taxing tax preparation services is fundamentally flawed,” Bonnie Stewart, executive director of the Connecticut Society of Certified Public Accountants, said “as it poses what taxpayers will view as a penalty for filing one’s tax return in a complete, compliant, and accurate manner by engaging professional assistance.”
The administration maintains that the sales tax expansion is still business-friendly because things such as legal and accounting services would still be tax exempt for business-to-business transactions.
Lamont’s first two-year budget proposal would also get rid of at least one tax — the gift tax.
In 2017, according to the Department of Revenue Services, 293 Connecticut taxpayers paid $6.13 million in gift taxes and only 11 of those gifts were over $2 million.
The budget also seeks to increase the filing deadline for estate taxes from six to nine months, but it would not eliminate the estate tax. The Progressive Caucus within the Democratic Party has signaled that it would fight any attempt to eliminate the estate tax.
Over the past two years the estate tax has brought in about $218 million to $223 million per year. It only applies to people who are inheriting estates larger than $3.6 million.
“It’s going to be a huge transfer of wealth directly to the ultra-wealthy in our state,” Rep. Joshua Elliott, a Hamden Democrat who is one of the leaders the Progressive Caucus, said of the proposal to eliminate the tax last week.
Lamont further plans to eliminate the $250 business entity tax that businesses pay every other year. That proposal has bipartisan support.
The governor’s budget also seeks to expand the $200 property tax credit to middle-income earners. The credit is currently limited to elderly households or households with children. The property tax credit Lamont proposed on the campaign trail will have to wait for the third and fourth year of his term.
The biggest drop in revenue Lamont faced in putting together his budget proposal was the reduction of the hospital tax. The revenue the tax brought into the state was expected to drop from $900 million to $384 million. Lamont’s proposal asks the legislature to maintain the tax at the current $900 million level and the supplemental payment to hospitals at $453 million.