Friday, July 8, 2011

The largest tax increase in Connecticut State History

From: Connecticut Senate Republicans

Our neighboring states are making the tough decisions and cutting the size and scope of state government. This budget leaves a lot of questions and deep concern on why spending isn’t being cut more.

Senator Toni Boucher says “We should not be entertaining talk of tax hikes until spending has been reduced as much as possible. This proposal doesn’t do that, it actually increases spending. The public is outraged.”

For the past month the talk has been about shared sacrifice, yet taxpayers, businesses and families, along with towns and schools have already been doing their fair share.

Senate Republican Leader John McKinney of Fairfield says, “Taxpayers will have sticker shock when they see the new tax increases.”

Most other states with serious financial deficits, like California, are rolling back their spending to 2007 or 2008 levels. Senator Boucher asked the state Office of Fiscal Analysis, “If we roll back spending to 2008 levels how much money would the state save? The answer was $2-billion.”

The progressive income tax brackets laid out in Governor Malloy’s proposal looks like this.

It’s important to note these income taxes will be RETROACTIVE to January 1, 2011. This means that taxpayers will be hit hard when and if, this tax package is passed. The governor’s budget adds $3.4 billion in new taxes over the next two years while offering only $2 billion in cost reductions. And the Governor’s recommended budget for all funds in FY 2011 is $19.3 Billion, in FY 2012 is $19.7 Billion and in FY 2013 is $20.0 Billion. There are no cuts to spending.

Over the past two years 100,000 public sector jobs have been lost, but during that same time no state jobs were lost. Senator Boucher says, “I am deeply concerned for those who create jobs in the state. Less than two years ago the highest wage earners had their taxes raised from 5 % to 6.5%. Those job creators will now be taxed at a rate of nearly 7%. That is almost 2% in two years. Is that how we grow jobs?”

What’s more disturbing is that the 10 % surcharge on corporations that was enacted to balance the budget over the last two years will no longer sunset. Instead, the governor proposes to extend it, driving more jobs out of Connecticut as businesses flee higher taxes. The surcharge will be passed down to consumers through increased prices. Yet at the same time, global competition has put pressure on businesses to lower prices and reduce their profit margins. This combination of high taxes and increased competition has Connecticut business in the crossfire. Just last week the CEO of Aetna lamented, “We’ve done the analysis and quite frankly, Connecticut falls very, very low on the list as an environment to locate employees…in large part because of the tax structure and the cost of living.”

Individual households will also be hit hard by new taxes. There is a tax on clothing under 50-dollars, taxes on non prescription drugs like aspirin, taxes on carwashes, taxes on haircuts and taxes on yoga and pet grooming to mention a few. And the $500 property tax credit will be taken away. In addition there is a 3-cent gas tax increase and a 2-cent increase on diesel fuel. This will put our state in the position of having among the highest gas tax in the nation once again. “This is not the time to hit people in the wallet when their disposable income has been severely reduced,” says Senator Boucher.

A big issue that state leaders have debated for years is the inheritance tax. The previous governor negotiated a major reform of this tax during the last budget cycle to stem the exodus of our seniors to states that do not impose an inheritance tax. The current proposal brings us back to square one. A report done in 2008 by the Department of Revenue Services shows this exodus does in fact exist, and millions in income tax revenue leaves Connecticut when people leave because the tax burden is too high.

“We cannot repeat past mistakes and take the easy way out by burdening working families and job creators with further taxes, “remarked Senator Boucher.

“This is shared sacrifice? This is low hanging fruit and doesn’t get to the root of the cause of our $3.2 billion dollar deficit. We spend too much. We need pension reform. We need to increase the retirement age from 55 to 65 years of age. Co-pays need to be raised on state employee benefit packages.”

Though heavy with the largest tax hike in state history, there are a few positives in the Governor’s budget proposal. There is a proposal to reserve transportation dollars for transportation purposes. Unlike previous years, those monies would not go to the general fund but would be safeguarded as Senator Boucher has proposed in legislation this year.

Another proposal would require the legislature to approve any union contracts and a measure to give the executive branch rescission authority to make deeper cuts in spending. There are also measures for long overdue consolidation of higher education. The state’s community colleges, CSUS system would be housed under one board of regents. As ranking member on the higher education committee, Senator Boucher says, “This has been a priority for a long time; to not only improve education for our students, but to also save money.” The governor’s proposal will also hold school and town budgets harmless while allowing towns to enact their own local sales, real estate, hotel and cabaret taxes.

The public feedback has been swift and vocal. Please, continue to contact me and the Governor’s office with your comments and concerns.

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