THE MALLOY BUDGET: CONSOLIDATIONS, SPENDING CUTS AND HISTORIC TAX INCREASES

When Gov. Dannel Malloy told state residents there has to be “shared sacrifices” to climb out of a nearly $4 billion budget hole, he was serious. In addition to previously announced agency consolidations, spending cuts and cuts in some state services, Malloy Wednesday will propose a massive $1.5 billion increase in various taxes.

Income taxes. Malloy proposes to create eight income tax brackets from the current three that will raise the tax on the wealthiest residents from 6.5 percent to 6.7 percent. All increases will be retroactive to January 1st of 2011 even if the legislature waits until the end of the current session to pass it. The breakdown on the proposed Malloy income tax:
3 percent up to $20,000;
5 percent on income from $20,000 to $100,000;
5.5 percent from $100,000 to $200,000
5.75 percent from $200,000 to $400,000

6 percent from $400,000 to $600,000
6.25 percent from $600,000 to $800,000
6.5 percent from $800,000 to $1 million
6.7 percent over $1 million

Sales taxes. Malloy proposes for the first time since the inception of the income tax, an increase in the sales tax from 6 percent to 6.25 percent. And it can rise to 6.35 percent if municipalities choose to exercise an option for an addition 10 percent. Many of exemptions to the sales tax, which to many appear arbitrary, would be repealed. The Hartford Courant lists haircuts, manicures, pedicures, yoga, car washes, yacht repairs, limousine rides, airport valet parking services, cosmetic surgery, pet grooming services and non-prescription drugs. The sales tax exemption for food would not be repealed nor would it be repealed for newspapers.

Other taxes including “sin” taxes. The gasoline tax would increase by 3 cents per gallon and has been the case in many past years, so-called sin taxes would increases—the cigarette tax would increase by 40 cents per pack to $3.40. All alcohol taxes would increase, which Malloy says would amount to pennies on a six-pack of beer.

Property tax credit on the income tax. Long a favorite of Democrats, the credit against the income tax on a sliding scale starting at $500 per household would be eliminated under Malloy’s plan. Republicans have tried in every budget negotiations in recent memory to eliminate the credit. This could be a point of contention between Malloy and the legislature.
Current services budget. Malloy says his budget would spend no more than the current budget. In reality that is a cut of about $1.8 billion because just to keep current services, the budget would increase because of salaries and contractual obligations.

Earned income tax credit (EITC). Design as a helping hand to the working poor, Malloy has proposed enacting it for the first time in the state’s history. The tax credit would provide a maximum of nearly $1,700 for poor, individuals and working families that earn below $21,500 per year. Families with three or more children that earn as much as $48,000 per year could still be eligible for a reduced credit that would be far below the maximum. The state EITC would be 30 percent of the federal credit.

Higher education consolidation. Malloy proposes eliminating duplicative bureaucracy in the state higher education system including having a single Board of Regents to oversee all the state higher education entities with the exception of the University of Connecticut.

State agencies and commissions cut 30 percent. The Malloy budget would pare the 81 state agencies and commissions to 81 to 57. The move would save only about $110 million now but has potential to save more going forward. It’s not clear whether there would be job cuts—Malloy’s people saying that would be left to the commissioners.

Education Cost Sharing (ECS). Malloy assured the state’s big city mayors last week that the state would not cut ECS funding even though last year’s funding was supplemented by federal stimulus money that will not be available this year. The hole must be filled.

All in all, there are plenty of elements in Malloy’s budget for people not to like which may indicate he is on the right track. Republicans and business groups will not like the amount of tax increases v. spending cuts. Good government groups don’t like the consolidation of watchdog agencies. Democrats will not be happy with the elimination of the property tax credit. The debate begins now.