“I will not allow this budget to be another scene from ‘Groundhog Day,’ where I come to you year-after-year hat-in-hand lamenting the fact that we still haven’t addressed our structural deficits,” Lamont said. “The fiscal crisis before us is not just a short-term hole in the budget. We are digging that hole deeper by $400-$500 million annually, due to fixed costs such as pensions, state employee healthcare and bonded debt — all growing faster than our economy. Most of these fixed costs pay for the past rather than investing in our future.”<doc-sep>HARTFORD — Haircuts, laundry, legal services, veterinarian visits and parking are on the list. Even paying an accountant to file your taxes could now be subject to the state sales tax. That’s because Gov. Ned Lamont proposed broad expansions of the sales tax in his budget proposal released Wednesday. The two-year budget does not increase the rate of the sales tax, but applies the levy to more things. Textbooks, medicine, helmets and parking may be taxed, if the governor’s plan passes, as well as numerous consumer services. Lamont wants ramp up enforcement of tax collection on online sales, too. For up-to-date information on public policy issues, sign up for the CT Politics newsletter. “Our current sales tax is designed for a Sears Roebuck economy driven by over-the-counter sales,” Lamont said in his budget address. “Today we live in an Amazon economy which is driven by e-commerce, digital downloads, and consumer services.” The sales tax expansion — forecast to bring in an extra $292 million in the first year of the budget and $500 million in the second year — was the major revenue change. Other revenue changes included $30 million from a 10-cent tax on non-compostable plastic bags; $34 million from an eliminated income tax exemption related to pensions; 16 million from higher licensing fees for professional corporations; and $8 million from higher real estate fees for high-end houses. Some scheduled tax cuts were delayed, notably a surcharge on the corporate earnings tax. But there were some significant tax cuts: a $200 property tax credit, based on income, to the elderly and people with dependents; an end to the business entity tax of $250 every two years; adjustments to the estate tax; and an end to a small gift tax, the only one by a state in the nation. The sales tax changes are Lamont’s biggest way of increasing state revenue without raising the personal income tax on the rich — a promise he made on the campaign trail. Plenty of people, on the left and the right, took issue with the changes. Lamont also wants to use tax policy to discourage behaviors like smoking, drinking alcohol and soda and using plastic bags. He proposed raising the age to buy tobacco to 21 and implementing a 75 percent wholesale tax on e-cigarette liquids. His budget included a 1.5 cent per ounce tax on drinks with added sugars and a five-cent bottle deposit on 50 milliliter liquor bottles and a 25 cent deposit on wine and liquor bottles. Debating fairness “The issue of revenues is going to be difficult, but I think it is going to be essential to do,” said Senate President Pro Tempore Martin Looney, D-New Haven. Speaker of the House Joe Aresimowicz called the state’s current tax structure “flawed.” “Is it far to pay [sales tax] for a pedicure but not a haircut? How is it that newspapers you don’t pay sales tax?” he asked. “There are a lot of things that make it inherently unfair.” Republicans said the budget relies too much on revenue increases and not enough on cuts in spending. While Lamont’s plan may win support among some wealthy taxpayers, left-leaning Democrats view the sales tax as “regressive” and want to decrease reliance on it. State Rep. Josh Elliott, D-Hamden, co-founder of the House Progressive Caucus, spoke passionately in favor of raising the income tax on the wealthy in recent days. “We are punishing the middle class in this state, and we are letting people who are ultra wealthy get by by paying nearly half of the rate of everyone else,” Elliott said. “We cannot simply be listening to anecdotal evidence of one or two ultra-wealthy people who are leaving our state.” House Minority Leader Themis Klarides, R-Derby, was also concerned about the effect of the governor’s tax changes on the middle class. “For the governor to say he is not raising the sales tax is slightly disingenuous because he is getting rid of exemptions,” she said. “There is nothing that hurts the middle class more than this budget proposal.” Senate Republican Leader Len Fasano, R-North Haven, said there were good reasons why many of these sales tax expansions had not been implemented earlier. About a dozen Republican lawmakers brought Big Gulp sodas to the budget address to protest the tax on sodas. Connecticut’s sales tax rate is now 6.35 percent. It applies to numerous goods, excluding groceries and medications. Last month, there was a report by the CT Mirror that Lamont was considering a sales tax on groceries, drawing immediate, fierce criticism. Instead, Lamont has extended the sales tax to many professional services, barber shops and beauty salons, dry cleaning, coin operated laundry, parking, massage therapy and waste collection. His budget would repeal the sales tax exemptions on non-prescription drugs, textbooks for college students, bike helmets, child car seat and newspapers. It would end the sales tax free week in August. Most of these changes would take effect on Jan. 1, 2020. “The governor proposes to capture a growing segment of the economy,” said Melissa McCaw, secretary of the Office of Policy and Management. “Really the goal here is to level the playing field and have an equal tax treatment of both goods and services.” Business-to-business transactions would be exempt, said McCaw. Lamont also suggested raising the tax on digital downloads from 1 percent to 6 percent, increasing the tax on boats from 2.99 percent to the standard sales tax and upping the hotel occupancy tax from 15 to 17 percent. Joe Brennan, president of the Connecticut Business Industry Association, said most of these sales taxes changes have been floated before. He doubted they would all survive legislators’ scrutiny. Connecticut Bar Association was among many groups that weighed in. “A sales tax on legal services will place a barrier to reaching those in need, including those facing elder care, end-of-life issues, divorce and family separation, health and housing challenges and other issues,” said Jonathan Shapiro, president of the CBA and an attorney in Middletown and Stamford. “The notion of taxing tax preparation services is fundamentally flawed as it poses what taxpayers will view as a penalty for filing one’s tax return in a complete, compliant, and accurate manner by engaging professional assistance,” said Bonnie Stewart, executive director of the Connecticut Society of Certified Public Accountants. emunson@hearstmediact.com; Twitter: @emiliemunson<doc-sep>Don’t fret if you haven’t kept up with all the advance news about the budget that Governor Ned is rolling out on Wednesday. I can barely keep it all straight and it’s my job. It does matter. We’re looking at new taxes, tolls, service cuts, new technology, new ways of attracting companies, nanny-state charges, the minimum wage hike, a payroll deduction and more. So here’s a simplified cheat sheet. I hate the phrase “what you need to know.” But if you care about whether Gov. Ned Lamont is going to lead Connecticut out of its fiscal hell and into sustained growth, what he tells us Wednesday is the script, the playbook, the road map, the bible, the recipe, the blueprint. This rough outline will be wrong on some details but this is the best information we have so far. I’ll update it later in the week when we have the full details. The Big Picture By the standards of some recent crises, the budget year that starts July 1 isn’t horrendous. Yes, it has a projected shortfall of $1.45 billion, or about 7.5 percent, if nothing changes from the current year’s budget. But there are some fairly easy ways to knock it down to size. What Lamont can’t do is lay off any state workers for the next two years due to a 2017 labor agreement signed by former Gov. Dannel P. Malloy. Lamont will need to raise taxes, but not by a huge amount. The biggest question is whether budgets with fairly deep cuts in spending can get through a General Assembly that’s dominated by Democrats, with very strong voting blocs of strongly identified progressives — who oppose most tax breaks for businesses and wealthy residents, and campaigned on restoring services. Sales tax increase Lamont has said he won’t increase the 6.35 percent sales tax rate, but will broaden the number of things covered by the tax. Right now it raises $4.2 billion a year. Taxing every good and service in the state would more than double that. Lamont plans to add about $300 million, which would be equal to one-half of 1 percentage point — but, again, not by raising the rate. The big question is whether and how he proposes to tax digital services and, for example, downloaded media. That’s been a battleground. Services such as legal work and haircuts also come up routinely in the debate. Further expanding collection of online retail sales — after an expansion that took effect Dec. 1 — is a fair and worthy Lamont goal that could help local brick-and-mortar stores. Personal income tax This is by far the biggest tax in the state, raising about $10 billion a year — somewhat less in this fiscal year. Progressives want another increase on the richest taxpayers, households making at least $500,000 a year. That went up to 6.99 percent from 6.7 percent in 2015. Lamont campaigned against an increase and isn’t likely to propose one. That’s okay because we need to stay below New Jersey and New York, and not far above Massachusetts’ flat tax of 5.1 percent. Lamont badly wants to expand property-tax credits to lower the income tax for middle-class homeowners but that’s costly, so look for something very limited. Estate tax This tax, levied on inheritances, applies to estates worth $3.6 million. It ranges from 7.2 percent to 12 percent. The threshold is scheduled to reach the current federal level of just over $11 million by 2023. The tax raises about $150 million a year, obviously yo-yo-ing depending on who dies. It’s always under a lot of pressure from Republicans and some Democrats from rich districts. Lamont hasn’t said what he’ll propose but I reported that repeal of the estate tax is part of a potential deal between Republicans who want it, and liberal Democrats who want a higher minimum wage. Keith Phaneuf of The CT Mirror described the tax and the pressure to lower it. It’s dumb for Connecticut to be one of only 12 states with an estate tax — and the only one with a gift and estate tax — and its especially dumb to have a threshold well under the federal level. Hate the rich or love them, if they agree to stick around and die here we’re all better off. Spending cuts This is where Lamont has spent hundreds of hours but we know very little about what he’ll propose. He can expect to achieve about $100 million in so-called lapses, money that agencies don’t spend during 2019-20. But he’s going to need to find at least another $100 million of real, targeted, scheduled cuts, and that’s tough. Overtime is high because of mandatory shift staffing levels in depleted departments such as Children and Families and Correction. Lamont is too smart to try to cut higher education and face the wrath of lawmakers, perhaps forcing higher tuition, as we’ve seen in recent years — right? Continued declines in the prison population could help here. Spending increases These will be small but with overwhelming Democratic control of the General Assembly, we may see expansion of health programs, perhaps even a new public option for coverage. And Lamont is committed to updating state systems to make Connecticut more like “an Amazon Prime experience.” That doesn’t come cheap. Grocery tax It’s not going to happen. The idea was for a 2 percent sales tax on groceries. The CT Mirror broke news that it was in the works. I reported Lamont saying it wasn’t in the top 50 ideas. The Courant had the governor saying it was never even considered. Maybe we were had by a governor who was outed. Maybe it was a trial balloon. Regardless, the idea drew unrelenting criticism from pretty much anyone of any party who was born between 1918 and 2018. Property tax reform This is the big nut, long-term. Some Democrats, led by Senate President Pro-Tem Martin Looney, D-New Haven, want to move the taxing of motor vehicles from cities and towns to the state, impose a uniform 19-mill rate and redistribute the money back to municipalities based partly on need. They also want to impose a 1-mill tax on real estate, for the same purpose. Lots of problems here, including a penalty on motorists in low-tax towns and a penalty on people who drive cheap cars in high-tax towns. It’s just a starting point for debate, along with Senate Democrats’ idea to force the consolidation of small school systems. Unclear what path Lamont will propose. Business spending Lamont will push for an end to the annoying “busines entity tax” of $250 every two years, just for existing. That raises $23 million a year, on average. We might see him curtail grants, loans and tax credits to companies, which amounted to nearly $200 million a year under Malloy. That was borrowed money, and Lamont has said he wants the state on a “debt diet” to keep long-term spending down. Hospital tax This is a complicated bait-and-switch game in which the state taxes hospitals by $800 million or more, then gives most but not all of the money back to the hospitals and calls that a Medicaid payment, thereby boosting the federal match. The current scheme expires on July 1 and Lamont is dealing with trust issues, as Malloy had a habit of keeping more of the money than the hospitals agreed to give up. There are more complexities, but all we need to know is the scheme would save $400 million if Lamont and the hospitals can reach a deal. They will. Minimum wage With so many Democrats in place who campaigned on the issue, including Lamont, the current minimum wage of $10.10 is almost certain to rise. Lamont supports a 4-year phase-in to $15, starting with a bump to $11.25 in January. This isn’t really a budget issue because the state doesn’t pay the minwage to many people, if any, but it will raise the price of some state contracts for services. Marijuana for adult use<doc-sep>
HARTFORD — Gov. Ned Lamont, in his first budget presentation, asked the General Assembly on Wednesday for their help in dealing with a $1.5 billion budget deficit and a looming multi-billion-dollar wave of red ink in the teachers’ pension fund. Legislative leaders and Capitol watchers said the request for collaboration, after eight years of an often-combative relationship with former-Gov. Dannel Malloy, was a breath of fresh air, whether or not they agree with specific proposals. For up-to-date information on public policy issues, sign up for the CT Politics newsletter. They said Lamont is approachable and down-to-earth as he navigates through the legislative maze and its early June deadline to come up with a two-year spending-and-tax package. He proposed a 1.7 percent increase over current spending in the $20.8 billion budget set to take effect July 1 and 3.4 percent to $21.2 billion in the second year. State Rep. Arthur O’Neill, D-Southbury, in his 31st year in the House, said lawmakers often thought that Malloy, a former prosecutor and Stamford mayor, negotiated budgets as if they were contentious criminal plea bargains. “His idea of making a deal was offering a couple years off your sentence,” O’Neill said on the House floor after the speech. “Gov. Lamont’s approach seems to be ‘let’s both profit.’” “He’s a straight-shooter who wants people to come to the table with ideas,” said Speaker of the House Joe Aresimowicz, D-Berlin. “His budget presentation today is refreshing both in tone and substance.” “The governor has talked with us about different ideas, about what he was thinking,” said Senate Majority Leader Bob Duff, D-Norwalk. “We sat with the governor for a preview yesterday and he said ‘Look, if you have any other ideas, I’m open to them.’ I think he’s looking for ideas as well.” Senate Minority Leader Len Fasano, highly critical of many budget details, said that he believes the governor means well. “I think Gov. Lamont is a very nice person,” Fasano said. “I think he welcomes conversations. So I think that is totally different than Gov. Malloy. I honestly believe that he’s trying to do the right thing. He is a neophyte to the budget. He’s a neophyte to the building. We have to give him a little slack there. I’m going to say I don’t like this budget.” “It’s so refreshing to have a governor with some personality, who’s engaging, who actually talks to you and is willing to work with you,” said Rep. Richard A. Smith, R-New Fairfield, in his ninth year in office. “Gov. Lamont is certainly a much more collaborative governor,” House Minority Leader Themis Klarides, R-Derby, said. “He’s much easier to approach. That doesn’t mean that he won’t stick with what he believes in, but he’s a more collaborative governor. Whether we agree at the end of the day, that’s something we need.” “He’s been very accessible both during the campaign and during the transition, and since he’s been sworn in,” said Joe Brennan, president and CEO of the Connecticut Business and Industry Association. He was impressed with Lamont immediately pointing out the state’s problems with fixed costs, such as the under-funded teacher retirement plan. “Imagine what we can do if we get this state going again,” said Lamont, a 65-year-old former small business owner whose previous experience in elective office was the Greenwich Board of Selectmen. “Together we can take this fiscal challenge and turn it on its head. The budget we have put together is far from perfect and I welcome your input.” Lamont warned that in particular, his proposed elimination of tax exemptions on digital and streaming sales, as well as many services, is bound to cause complaints, while making the tax structure fairer. “Why do you have to pay a sales tax on a manicure, but you don’t pay a sales tax on a haircut?” Lamont asked in a 35 minute speech punctuated about a dozen times by applause, mostly from his fellow Democrats. “If every tax expenditure had a strong lobbyist behind it, the pushback will be ferocious,” he predicted. “I’m gonna work this out with you.” Lamont leaned on his business experience and asked lawmakers to work with him to avoid a looming $1.5 billion deficit projected for the budget that starts July 1. “Today, I am presenting you a budget which gives us the best chance to get this state growing again. Connecticut has been a jobs laggard for many years, which depresses opportunity and hits our budget every year,” he said.