Not deterred by the strain placed on the state’s budget by the coronavirus pandemic, Senate President Pro Tem Martin Looney said he plans to pursue an ambitious tax reform agenda during the 2021 legislative session, including a proposal to institute a new tax on Connecticut’s wealthiest residents.

“We are going to need new revenues and the only fair way to do it is through progressive tax means,” Looney said during a broad discussion Thursday with The Day’s Editorial Board, which was held virtually.

“I hope we’ll be able to get a revenue stream from the legalization of marijuana and from sports and internet gaming, but apart from that, any other revenue that we need to raise, and I think we will, has to be done by a progressive form of taxation,” he said.

Looney, a Democrat from New Haven, wants to institute a new tax, separate from the state’s income tax, that would apply to the capital gains and dividends income of residents paying the highest income tax rate, currently 6.99%. Capital gains are profits earned from the sale of assets such as stocks and real estate. Dividends include bonuses and shareholder earnings, among other sources of income.

“We’d have to do it at a fairly modest increment, maybe one (percentage point), go to 7.99%, rather than 6.99% on that category of income,” Looney said.

Establishing it as a separate tax would mean the revenue would not be subject to the state’s volatility cap, Looney said, which mandates that the state save any income tax receipts from quarterly filings in excess of $3.1 billion per year.

The proposal likely will be a hard sell for Gov. Ned Lamont, who has opposed further taxes on Connecticut’s wealthiest residents during his gubernatorial campaign and while in office. Lamont is concerned an increase in the income tax will cause Connecticut’s wealthiest residents to move out of state, an argument Looney pushed back on Thursday.

“As long as we don’t have a rate that’s disproportionate to what other states in our region have, we don’t really have to worry about that,” Looney said.

Of more concern, in Looney’s mind, is the state's estate tax.

“Studies have shown that many people start doing their estate planning maybe seven to 10 years before they actually die, and that’s the time we risk having them become residents of other states, not because of the greater income tax rates that are paid but for what impact they see it might have on their estates,” he said. 

In order to “cushion the blow,” changes could be made to the estate tax to offset the higher rate on capital gains and dividends income, Looney said.

Looney is in favor of legalizing recreational marijuana and online gaming and sports betting, which he sees as revenue generators for the state. He said he hoped an agreement would soon be reached between Lamont and the tribal owners of Connecticut's two casinos as to their role in any legalization of online gaming and sports betting, so that the debate could proceed to the General Assembly.

One revenue-generating idea that is off the table: tolls. Lamont has said he would not revive his tolls proposal, which Looney agreed Thursday was unlikely to be revisited.

Looney said he expects property tax reform also will be part of next year’s legislative agenda, an issue that Lamont campaigned on in 2018 but has done little to push forward since.

With cities and towns heavily dependent on local property tax revenues due to decreasing state aid over the years, Looney wants to change the state’s current payment in lieu of taxes, or PILOT, program. The program provides revenue to municipalities to reimburse them for lost revenue from tax-exempt property owned by colleges and hospitals, and the state itself.

Currently, the state reimburses municipalities all at the same rate, but Looney would like to create three levels of reimbursement. The top tier, municipalities with the highest number of tax-exempt properties, would be reimbursed for 50% of the lost revenue, and those in the bottom tier would retain the current 25% reimbursement rate.

Looney acknowledged Thursday that how much of his agenda he'll be able to get accomplished hinges on how robust a coronavirus relief package Congress agrees on. White House officials and congressional leaders still are working out disagreements in the proposed $900 billion package.

"In a crisis like this, we all have to look to the federal government because only the federal government can deficit spend," Looney said. "It's the only level of government that can respond to an emergency with a significant infusion of money without having to worry about balancing its budget."

The 2021 legislative session is scheduled to start Jan. 6, with the swearing in of legislators likely to happen outdoors, Looney said, as the pandemic rages on. All business will be conducted virtually to start. Lawmakers will need to adopt new rules to enable them to vote electronically and carry out other proceedings remotely, Looney said.

j.bergman@theday.com