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June 29, 2017

House Democratic leaders pitch sales tax to shield towns, hospitals

House Democratic leadership made a pitch Thursday to protect municipal aid and hospitals, unveiling a new two-year budget proposal that would raise the sales tax rate to 6.99 percent.

The two-year, $40.11 billion plan, which would boost General Fund spending about 2 percent annually, would also ask a key part of the Democratic base — municipal teachers — to pay more for pensions and give up their third successive tax break on pension income.

And in a letter to Gov. Dannel P. Malloy, House Speaker Joe Aresimowicz, D-Berlin, and Majority Leader Matt Ritter, D-Hartford, wrote, “It is our hope to vote on this budget in the House of Representatives on July 18.”

The budget was seen not only as a statement of House Democratic fiscal principles, but also as a rebuff to Senate Republican leader Len Fasano, who’s charged repeatedly that Democrats haven’t developed a thorough, “line-by-line” plan for the next two fiscal years.

In reply, Fasano said there are significant tax increases in the Democratic plan. “To our caucus, that’s a non-starter,” he said.

With legislators and the governor unable to agree on a state budget for the entire fiscal year that begins Saturday, Malloy has asked legislators to pass a temporary 3-month budget as a stopgap. But Republicans have said that plan is not acceptable, and on Thursday, House Republicans released its own proposed 30-day budget that would “head off the looming fiscal crisis” by continuing to fund several programs.

The linchpin of the Democratic plan involves raising the sales tax rate from 6.35 to 6.99 percent. This would raise a projected $419 million in the first year of the new budget and $429 million in the second.

A second sales tax initiative involves a 1 percent sales tax surcharge on restaurant patronage, with the receipts being dedicated to the communities where the establishments are located.

This would generate another $61 million in the first year and $70 million in the second.

The budget also includes a 1 percent increase in the hotel tax that would raise an additional $8.4 million per year.

House Democrats also set a very aggressive target for unspecified savings in the first year of the new budget, requiring the governor to find $83 million more in efficiencies than his own budget plan called for.

House Democrats also say their budget would enable them to preserve more local aid than in the governor’s budget proposal, including:

  • $127 million more each year in the existing sales-tax revenue-sharing program;
  • $58 million more annually in a second program that shares casino receipts;
  • $56 million more per year to reimburse communities because private hospitals and colleges are exempt from local taxation.

In addition, the House Democratic plan rejects an income tax hike proposed by the governor on middle class families. Specifically it preserves the $200 income tax credit households can claim to offset local property tax bills.

The new budget rejects proposals from the governor to bill communities $400 million per year to help fund teachers’ pension fund contributions, and to allow communities to tax private, nonprofit hospitals’ real property. That is expected to save hospitals about $210 million annually.

To help pay for these priorities, caucus leadership also recommends asking one of the strongest parts of its political base to sacrifice. The plan would increase the share of salary teachers pay toward their pensions from 6 to 8 percent.

It also would delay the third consecutive income tax cut in three years for retired teachers. Malloy and the legislature agreed in 2014 to a three-stage tax break for this group.

Starting with the returns filed in the spring of 2015, 10 percent of retired teachers’ pension earnings were income tax-exempt. The exemption increased to 25 percent this past spring, and would reach 50 percent next year.

Suspending that final stage would save the state $8 million per year.

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