Governor’s Tax Proposals Part Of A Plan Of ‘Shared Sacrifice’

By Nancy K. Crevier

The budget speech presented by Governor Dannel P. Malloy, February 16, outlined means of increasing revenue and decreasing spending at the state level, to reduce the budget deficit. The proposals will affect residents at all income levels, with some of the tax changes slightly more painful to bear than others.

“I’ve spoken at length about shared sacrifice, and I think this budget explains what that means — I’m asking for a little from everyone to avoid overburdening any one group.  And I refuse to balance the budget on the backs of local taxpayers,” stated Gov Malloy in his speech on balancing the budget for 2012-13.

Gov Malloy suggested a need to fund operating expenses with existing revenue, and eliminate borrowing, among many cost-saving strategies. He has decreased his staff size by 15 percent, and would like to see the number of budgeted state agencies decreased.

His goal, he said, is to create $1.5 billion in new revenue, 81 percent of which will be paid for by individuals, and 19 percent by businesses.

The governor has proposed an increase in the six percent state sales tax by one quarter of one percent to do so. He has also proposed taxing services that have previously been exempt from sales tax or increasing some existing taxes, as a means of raising revenue. Taxes on clothing and footwear under $50 would no longer be exempt under Gov Malloy’s proposal. State residents could see taxes applied to nonprescription drugs, cosmetic surgery, yoga studio classes, valet parking at airports, and marine services. Services now exempt from taxation, including haircuts, manicure and pedicure service, and car washes, would be taxed at the new sales tax rate.

The governor is also calling for the elimination of trade-in tax exemption for vehicles, the elimination of sales tax-free week (usually just prior to the start of the school year), and another that affects many frugal state residents, and businesses: the change to taxation of discount coupons.

Under the current tax law, sales and use taxes on coupons and scan cards are calculated on the price reduction. Under the governor’s proposed tax change, items purchased with coupons or scan cards would be taxed at their full value.

“There is some confusion about this proposal,” said State of Connecticut undersecretary Gian-Carl Casa, Wednesday, March 3. “People think that for an item on sale [in a store], you’ll have to pay tax [on the original price]. This [proposed tax increase] is just items that are purchased with a coupon,” said Mr Casa. While he has seen a stir in media articles about this particular proposal, in actuality, said Mr Casa, the additional amount residents would pay would be “negligible. Say you have a $100 item and a $10 coupon. The difference in tax is maybe 60 or 80 cents. We are talking about $45 million in revenue that we need. I don’t think anybody thinks it’s a good thing to do, but it is part of a bigger package of $1.8 billion in revenue cuts. A 20 percent budget gap,” pointed out Mr Casa, “is not easy to fill.”

Legislation would be needed to make changes in order for this particular proposal to go through, said Mr Casa.