HARTFORD, CT — The Finance, Revenue, and Bonding Committee is proposing increasing revenues by $1.01 billion in 2020 and $1.33 billion in 2021, but the tax package the committee is hoping to adopt Wednesday doesn’t accept all of Gov. Ned Lamont’s suggestions.
The committee, which eventually passed the package 29-21, rejected some of Lamont’s efforts to broaden the sales tax base by eliminating existing exemptions. The committee instead proposes to limit Lamont’s list to removing the exemptions on interior design services, except when purchased by a business for use by such business; specified parking services; transportation network company services like Uber and Lyft; safety apparel; and dry cleaning and laundry services, excluding coin-operated services.”
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The committee also proposes to keep the sales tax exemption on the accounting and legal services industries, which lobbied against a sales tax for their services.
However, the committee would increase from 6.35% to 7.35% the sales tax on prepared meals sold by restaurants, caterers, or grocery stores. It also would increase the sales tax on liquors, soft drinks, sodas, and beverages sold in connection with those meals.
The committee’s tax package also seeks to impose a 2% surcharge on capital gains of Connecticut’s wealthiest citizens in 2021.
“I don’t think it’s good policy,” Lamont has said. “For 25 years we’ve said we’re going to tax capital gains, dividends and interest income at the same rate. This would break sort of a 25-year tradition.”
Lamont said Connecticut’s rate is higher than the rate in Massachusetts, but lower than New York’s.
“I understand where the sentiment is but I want to give people a reason to stay,” Lamont said.
According to the Department of Revenue Services, 13,835 Connecticut tax filers earn enough money to meet the income threshold to pay a capital gains tax. That’s fewer than 1 percent of the 1.622 million tax filers in 2017.
Two moderate Democrats, Rep. Buddy Altobello of Meriden and Rep. Stephen Meskers of Greenwich voted against the package.
The fingerprints of the Progressive Caucus seem to be all over the tax package. Rep. Josh Elliott, D-Hamden, said he thinks Democratic leadership has really listened to the concerns of the more than 40 members of the caucus. Now it’s up to them to negotiate a final package with the governor.
Elliott said Lamont will have to determine how hard he wants to fight against the capital gains tax, if it’s part of the larger budget package.
“Do you really want to be here until August, September, October to fight this one issue just because you made that campaign promise?“ Elliott said.
He said he doesn’t believe the 2% surcharge, which is projected to raise $262 million, will drive the wealthy out of the state.
Senate Republican Leader Len Fasano, R-North Haven, panned the committee’s proposal.
“This budget also destroys Gov. Lamont’s ‘debt diet’ and implements a capital gains tax the governor repeatedly said he would not support,” Fasano said. “Yet again we are seeing the governor get pushed around by members of his own party. Is he going to take a stand on anything, or is he going to continue operating in fear of Democrat legislators?”
Lamont said he appreciated the effort the two budget writing committees have put forward, but he’s not going to budge on his debt diet.
“Our Debt Diet was reviewed favorably by the ratings agencies and resulted in an outlook upgrade. What the markets – and businesses – are telling us is clear,” Lamont said Wednesday. “Cut back on the borrowing while maintaining our state’s infrastructure, get the state on firmer fiscal footing, focus on a reliable, sustainable solution for transportation investment, and get the state growing again.”
Rep. Vincent Candelora, R-North Branford, said if they look at the tax package in a vacuum “there is an effort to shift more of the tax burden onto our wealthier communities.”
Candelora added that the proposal appears to include an effort to look at the regressiveness of the sales tax, but he said it needs to be looked at more broadly.
They are “picking winners and losers,” Candelora said.
He said the best way not to hurt the middle class would be to look at cutting spending. However, on Tuesday the Appropriations Committee came out with a budget that increases spending by about $100 million over what Lamont proposed in February.
The revenue package also uses about $50 million in surplus in each year of the budget. It repeals the $250 biennial business entity tax and the gift tax.
The tax package put forward by Democratic lawmakers also eliminates the 1.5 cent per ounce sugary beverage tax, which was expected to raise about $163 million, and also adopts Lamont’s proposal to establish a 10-cent fee on single-use plastic or paper bags at retail checkouts.
The package would also increase the excise tax on alcoholic beverages by 10% and would reduce by 50% the excise tax on beer sold by craft breweries.
It also delays, by two years, the scheduled increase in the teacher pension income tax exemption by maintaining the exemption at 25% for 2019 and 2020 and increasing it to 50% beginning in 2021, and repeals the refundable personal income tax credit for college graduates in science, technology, engineering, or math fields.