Bucking Trend, Connecticut Budget Deal Raises Taxes, Gasoline Excepted

Driving against traffic in an antitax era, Connecticut lawmakers appear poised to approve a two-year, $40.2 billion budget that includes $1.5 billion in increased taxes on income, corporations and an array of purchases and services, from yachts to yoga classes.

Budget negotiators reached an agreement over the weekend on a deal that came together after they decided, in the face of soaring gasoline prices, to drop a tax increase of 3 cents a gallon that Gov. Dannel P. Malloy proposed in mid-February. The agreement went to the State Senate for a possible vote on Monday and is scheduled to go to the House of Representatives on Tuesday.

With Democrats in control of the governor’s mansion and both houses of the legislature, Connecticut appears on track to have a budget months earlier than has been the rule under the divided government of the past two decades.

Mr. Malloy and Democratic leaders said their plan spread the fiscal pain around, with both tax increases and spending cuts, and tried to put government on a sustainable path in a state with the highest rate of debt per capita in the country. Republicans said the proposal was a reckless throwback to an era of government overreach and profligate spending.

The budget would raise the general sales tax to 6.35 percent from 6 percent, and remove exemptions for many goods and services, including clothing and footwear less than $50, yoga instruction and smoke cessation products. It would impose new taxes on luxury items like plastic surgery, pet grooming and spa services.

As officials in nearby states — including New York, New Jersey and Massachusetts — have become conspicuous converts to the current antitax, antigovernment fever, Mr. Malloy and Connecticut Democrats are striking a more anomalous course, betting that residents will accept the short-term pain of tax increases if they see a long-term gain of stable government services and fiscal policy.

First, though, the state has to navigate what could be a tumultuous week, as lawmakers take up the budget before they know the outcome of high-stakes negotiations that have been going on for almost two months between the governor and the state’s public-employee unions over the $1 billion in annual cuts needed to make the plan work.

If Mr. Malloy and the unions come to an agreement by Friday, it would provide the cost savings needed to balance the budget and complete the process at a breakneck pace. If they do not, the result is likely to be widespread layoffs and a messy spate of spending cuts after the budget has already been passed.

The governor’s approach is “a very different path than most other states,” said Roy Occhiogrosso, senior adviser to Mr. Malloy. “It has not just the rhetoric of what the governor says are shared sacrifices, but the reality of it as well. The value of it is that it gets you quickly to a place where the state’s finances are stabilized, and it’s done in a responsible and humane fashion.”

Republicans proposed a budget that they said was balanced without any tax increases. Mr. Malloy, they said, is flying in the face of public sentiment in Connecticut and across the country in pushing through a major tax increase, and trying to do it so quickly.

“The haste is simply about trying to pass the largest tax increase in Connecticut history in the hopes that people either won’t notice it or will forget about it sooner rather than later,” said Christopher C. Healy, chairman of the state Republican Party. “And now you’ve got the perfect cover of the great news of the disappearance from this earth of Osama bin Laden. The Democrats have long relied on the public’s being either oblivious or resigned to their fate, so they figure the earlier they get a tax hike on the books, the better.”

Mr. Malloy is counting on an agreement with the unions and a restructuring that will cut the number of state agencies to 57 from 81. Although the cuts remain uncertain, the tax increases are quite clear.

They extend from human pleasures (a new 3 percent “cabaret tax” on establishments that offer live music, dancing or other entertainment while serving alcohol) to nonhuman ones (pet boarding and obedience classes) and even to life’s aftermath (the cremation certificate fee increases to $150 from $40). One viewed as particularly problematic is the so-called “Amazon tax,” requiring certain remote sellers with no physical presence in Connecticut to collect sales taxes. The state’s Department of Revenue Services said it was probably unenforceable.

The budget would increase marginal tax rates on incomes over $100,000 for joint filers, $50,000 for single filers and married people filing separately, and $80,000 for heads of households.

Still, as a product of hard times, the budget agreement could be complicated by the degree to which times at the moment are not quite as hard as they have been. Officials said last week that the surplus for the current year was growing by $300 million, and the revenue estimates for the next fiscal year are up by $282 million. That is good news for the state, but uncertain tidings for the budget. Republicans are already saying the surpluses are evidence that the tax increases are excessive, and unions are likely to argue that the $1 billion in proposed cuts is now more than what is needed.

Article source: http://feeds.nytimes.com/click.phdo?i=5191af8ba2f0a8f8ac7b5d91fbb5b2e1