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Malloy should make it clear big tax hike is unacceptable

Rather than try to control the growth of government, the Democratic leadership in the state General Assembly backs a plan that would increase tax collections over the next two years by $1.9 billion. The total is $2.4 billion if you count the cancellation or delaying of $500 million in tax reductions that were supposed to begin over the next two years.

Senate President Pro Tem Martin M. Looney tried to spin the plan as a way to “make our tax system more progressive.” House Speaker Brendan Sharkey claimed, “The revenue portion (i.e. taxes) of this budget protects hard-working, middle-calls families … and asks the rich to pay a little bit more.” However, the bottom line is that a tax hike of that size will hurt family budgets, businesses and the economy.

In campaigning for re-election, Gov. Dannel P. Malloy dismissed state deficit projections of $2.5 billion over the next two fiscal years as overblown and promised not to raise taxes. He argued that a combination of a growing economy that would boost tax revenues and his administration’s ability to limit government growth would make tax hikes unnecessary.

Though some predict a coming job expansion, economic growth has so far remained slow, and so too the resulting growth in tax revenues. Piling on more tax increases now would prove self-defeating by inhibiting business and job expansion and depressing consumer spending. This is not the path to rebuilding a healthy Connecticut economy and making the state more competitive. Instead, such an approach augments Connecticut’s reputation as unfriendly to business.

The better choice is to enact a budget that lives within the revenues the economy now generates under current tax law.

Gov. Malloy seems to recognize the proposed tax-increase plan that emerged from committee is a bad idea.

“This is not the time to reverse our path or our trajectory,” he said Monday after emerging from a meeting with Democratic leaders in the legislature. He reiterated that lawmakers should work within the framework of the $40 billion, two-year fiscal plan he presented to the legislature. That would be as opposed to the Appropriations Committee proposal, which is nearly $600 million higher and seeks to blow through the constitutional spending cap by redefining the rules governing it.

We would like to see the governor state flatly that he will not sign a budget with a large tax increase.

While it does not increase tax rates, the governor’s own budget proposal contains a net increase in tax revenues of $360 million over the two years, in large part by proposing restrictions on credits that corporations can claim.

That pales in comparison, however, to the tax hikes proposed by the Finance, Revenue and Bonding Committee. Couples making more than $1 million a year, or individuals earning more than $500,000, would be taxed at about 7 percent, compared to the current 6.7 percent. Those households would also pay a new 2 percent surcharge on income from capital gains.

Combined with new taxes on corporations, the changes would hike taxes $1.06 billion.

Another $1.4 billion would come from expanding the sales tax to cover more services, such as veterinary care, golf fees, dry cleaning bills, and such things as interior design; accounting; data processing; drafting and engineering; consulting; business inspections; and surveying.

The added cost would trickle down to consumers.

The fig leaf offered to cover this embarrassing proposal is a reduction in the sales tax rate from 6.35 percent to 5.85 percent.

Also contained in the plan is a cap on motor vehicle taxes, with $80 million in state aid sent to cities with high tax rates to make up for the loss in car-tax revenue.

It makes sense at some point to debate tax policy in the state, including repairing a system that causes car owners in some cities to pay a far higher tax than their suburban neighbors pay for the same model car. And some exemptions to the sales tax don’t make sense. But that should be a revenue neutral discussion. This proposal is a money grab.

It was disappointing to hear Gov. Malloy dismiss the Republican minority’s alternative proposal as “unbelievably bogus.” He admonished some in the press for having “cut them a little bit of slack.” I guess that would include us, because we liked some of what the Republicans had to offer.

Inconveniently for the governor, the Republicans reminded him the labor concessions he reached to fix the fiscal crisis in 2011 fell $253 million short of the $900 million annual savings projected. They called on Gov. Malloy to bring labor back to the table and find those savings. Call us gullible, but we found that a reasonable demand.

The Day editorial board meets regularly with political, business and community leaders and convenes weekly to formulate editorial viewpoints. It is composed of President and Publisher Tim Dwyer, Editorial Page Editor Paul Choiniere, Managing Editor Tim Cotter, Staff Writer Julia Bergman and retired deputy managing editor Lisa McGinley. However, only the publisher and editorial page editor are responsible for developing the editorial opinions. The board operates independently from the Day newsroom.

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