HARTFORD - Connecticut's new governor, Democrat Ned Lamont, offered a budget plan Wednesday that modernizes the state's sales tax base by imposing the 6.35 percent levy on a long list of goods and services, proposes highway tolls as way of funding transportation, and takes steps to stabilize the state's pension systems and make government more efficient.
The wealthy businessman-turned Democratic politician said he hopes the initiatives in his two-year, $43.1 billion tax-and-spending plan, coupled with input from the Democratic controlled General Assembly, will finally address Connecticut's stubborn budget deficit challenges.
“Today, I am presenting you a budget which gives us the best chance to get this state growing again,” he told a joint session of the legislature, adding that Connecticut has been “a jobs laggard for many years,” which impacts the state budget every year. Connecticut is currently “staring down the barrel of a $3.7 billion deficit” over the next two years, he said.
Lamont's message received mixed reactions from lawmakers, especially Republicans who voiced concern about his call for imposing the sales tax on everything from legal services and haircuts to child car seats and vegetable seeds. While it retains the existing sales tax exemption on food, the plan eliminates it for newspapers, text books, campground rentals, non-prescription drugs and a host of other items and services.
It also eliminates the annual sales-tax-free week in August, imposes higher taxes on electronic cigarettes, and creates a 10-cent plastic bag surcharge. It also eliminates an increased exemption from the personal income tax for Social Security and pension income. Lamont also proposed two options for electronic highway tolls: only for big trucks or for both trucks and cars.
“I think he has good intentions, but the way this is put together hurts nobody but the middle class and Main Street America in this state,” said House Minority Leader Themis Klarides, R-Derby. “And that's not who we need to hurt and that's not who we can afford to hurt.”
House Majority Leader Matt Ritter said if lawmakers don't like ending the sales tax exemptions, “then give us your ideas,” noting how Lamont stressed he is open to working on possible changes. Legislators and Lamont hope to reach a final budget agreement before the legislative session adjourns June 5.
Melissa McCaw, Lamont's budget director, said the governor believes it's important to impose a “level playing field” and expand the sales tax base. However, past governors have tried to pare tax exemptions, but faced strong opposition and often reversed proposals to end the tax break. Connecticut Business and Industry Association President and CEO Joseph Brennan noted that ending some tax exemptions could have significant ramifications. For example, Lamont wants to repeal sales tax exemptions on winter boat storage and maintenance and repair of boats, an industry that faces stiff competition from nearby states that don't tax such services.
“I've served on commissions and task forces at the legislature looking at these things. It's not like it's just one lobbyist went in and did a good job. Usually there's some rationale behind these things,” Brennan said. “But I still think they're going to get looked at.”
Lamont's budget also calls for increasing taxes on digital downloads and hotel rooms and adding a 25-cent deposit on wine and liquor glass bottles and a 5-cent deposit on small liquor bottles commonly known as nips. It also maintains a contentious tax imposed on hospitals across the state and requires cities and towns to cover part of the cost of the state's teacher retirement fund, art of an effort to help address the pension plan's unfunded liability problems.
Organizations representing both teachers and municipalities voiced concern with Lamont's plan to shift some of the cost of the retirement fund to cities and towns.
“We oppose a scheme lacking detail to saddle local communities with additional costs to support their educators’ pensions,” said Stephen McKeever, AFT Connecticut's vice president for preK-12 teachers. “Such a move would hike local property taxes and imperil students’ opportunities to learn.”
Lamont said stabilizing the underfunded teacher pension fund is an “urgent priority” for him, warning how there could be “disastrous consequences” if the financing schedule is not fixed. Lamont said he's working with Democratic State Treasurer Shawn Wooden on ways to smooth out the payments for both the teacher retirement system and the state employee plan, adding how he hopes to work with organized labor to lower the state's annual contribution over the coming years.
Lamont on Wednesday also called for raising the age to use tobacco products and electronic cigarettes to 21, increasing the minimum wage to $15 an hour, eliminating the $250 biennial business entity tax and allowing the $200 property tax credit against the personal income tax to apply to all filers, not just the elderly and people with dependents.