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State News

GOP tries to reignite tax-cutting debate

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House and Senate Republicans pitch a $746 million plan Tuesday to expand tax relief to counter inflation.

Republican legislative leaders called Tuesday for a special session to order nearly $750 million in additional state tax and other relief, including suspension of the diesel fuel tax that is projected to climb sharply on July 1.

The GOP called for a special session before that date to order the first income tax rate reduction in more than two decades, a temporary sales tax cut, the repeal of a highway use tax on large commercial trucks that takes effect Jan. 1 and to dedicate $42.5 million extra for energy relief for poor households.

This would all be in addition to the $663 million relief plan Gov. Ned Lamont and his fellow Democrats in the legislature approved shortly before the regular General Assembly session closed on May 4.

But while Democrats tout this as the largest tax cut in state history, Republicans say it is minuscule set against the billions of dollars in reserves state government has amassed while skyrocketing inflation punishes Connecticut households.

“Our families across our state of Connecticut are feeling the pain of a government that’s not paying attention to them,” Senate Minority Leader Kevin Kelly, R-Stratford, said during a late-morning news conference outside the Capitol. “We see the cost of living continues to increase: the cost of oil, the cost of groceries. The cost of just trying to balance our family budgets is becoming more and more difficult.”

“As a member of the General Assembly, I’m embarrassed by what was done this past session with the Democrats’ tax proposal that was supported by the governor,” said House Minority Leader Vincent J. Candelora, R-North Branford. “We knew going into the budget cycle that Connecticut was on hard times and inflation was on the horizon.”

According to the Consumer Price Index, goods and services, on average, cost about 8.3% more nationally than they did 12 months ago. And the 8.5% increase in the CPI the U.S. Bureau of Labor Statistics reported in March was the highest since December 1981.

The AAA Northeast reported an average per-gallon price for regular gasoline in Connecticut on Tuesday at $4.93, while diesel stood at $6.19.

And the state tax on diesel is expected to climb sharply on July 1. It’s set according to a formula created by the 2007 legislature that depends heavily on wholesale diesel prices over the prior year. And since July 2021, the wholesale price has more than doubled.

Experts in the fuel distribution and trucking industry are projecting an increase of 10 cents per gallon or more. And some economists warn this only would exacerbate inflation driven — in part — by a year-long surge in fuel prices.

To counter that, the GOP plan would suspend the latest diesel tax hike and waive the current diesel tax of 40.1 cents per gallon for the rest of the 2022 calendar year.

The single-largest cut Republicans proposed involves reducing one of the primary state income tax rates levied on middle-class earnings.

Lawmakers first enacted the income tax in 1991 with a flat 4.5% rate on all earnings and added a 3% rate four years later — but only on the first $10,000 earned by singles and $20,000 earned by couples.

Since then, it’s evolved in a system of seven tax brackets, with rates ranging from 3% to 6.99%, with most middle-income households’ earnings taxed at 5% or 5.5%.

Any relief for filers since 1996 has come in the form of new credits and exemptions. But Republicans would drop the 5% rate to 4% for all singles making less than $75,000 per year and all couples below $175,000.

The GOP also would reduce the base sales tax rate from 6.35% to 5.99% and would suspend the 1% surcharge on prepared meals. These changes both would apply only to the 2022 calendar year.

Republicans said they’re skeptical Democrats would be willing to come into special session this summer to consider more tax cuts.

It’s always been challenging to arrange a summer special session for 151 representatives and 36 senators given that many will have scheduled vacations. In addition, 2022 is a state election year, and many incumbents are focused on campaigning.

Rep. Sean Scanlon, D-Guilford, who co-chairs the tax-writing Finance, Revenue and Bonding Committee, wouldn’t rule anything out.

“We are, of course, open to additional relief,” he said, “but the question is: What is sustainable?”

Nonpartisan state analysts are projecting state finances will be modestly in the black in 2023-24, the first full fiscal year after the election.

But major banks have begun warning of a major national recession in 2023. And Lamont and others have cautioned against committing to too much tax relief now only to scale it back a year from now.

One of the linchpins of the Democratic relief plan approved in May was a one-time state income tax rebate this summer of $250 per child for low- and middle-income households.

Scanlon, who had pushed for this program to be ongoing, said if there is more money for tax relief, many legislators feel strongly that this should be top priority.

“We have to be strategic here,” he said. “We can’t create cliffs that we can’t back away from.”

Senate President Pro Tem Martin M. Looney, D-New Haven, told the CT Mirror on Monday that while the impending diesel fuel tax hike could further inflate the cost of goods, the primary damage was done by the year-long increase in wholesale diesel costs — a trend driven by international forces.

Looney also said Republican tax cut proposals “really should be discredited” given that the minority hasn’t offered a public plan to balance all state finances since bipartisan budgets were negotiated in 2017 and 2018.

It’s easy for Republicans to talk about cutting taxes when they don’t explain how they would pay for government programs, Looney said.

“Until they’re willing to talk about both sides of the ledger, I think their comments should be pretty well ignored,” he said.

Scanlon also noted the Republican plan would reduce the amount of funds Connecticut could use to reduce its massive pension debt.

The Lamont administration estimated that $3.6 billion out of this fiscal year’s $3.8 billion surplus would be available to reduce pension debt. The other $200 million would be used to boost the rainy day fund from $3.1 billion to $3.3 billion and to keep it at its legal maximum, equal to 15% of annual operating costs.

Connecticut has roughly $40 billion in unfunded pension obligations, which it chiefly amassed between the late 1930s and 2010, a burden that ranks, per capita, among the largest of all states.

We do not want to do anything which undermines the goals of making historic pension payments,” said Lamont’s communications director, Max Reiss.

And while the governor remains open to discussions, “where we won’t compromise,” Reiss added, is “keeping our state on firm financial footing.”

“The Republican political press release is a return to the fiscal irresponsibility of the past and a betrayal of future generations of our state,” Looney added Tuesday in a joint statement with Senate Majority Leader Bob Duff, D-Norwalk. “The Republicans slash $750 million in debt payments, which will not only cost taxpayers this year but will saddle them with millions in payments each year for the next 25 years.”

Looney and Duff noted that a failure to control pension debt was “the hallmark” of Republican Govs. John Rowland and M. Jodi Rell, who served from 1995 through 2010. In all but Rowland’s first two years, the GOP governors served with Democratic-controlled legislatures.

“We must not fall back into that irresponsible pattern,” Looney and Duff wrote.