April 4, 2006
By CHRISTOPHER KEATING, Capitol Bureau Chief
A key legislative committee rejected
Gov. M. Jodi Rell's tax package Monday, opting instead for a plan
that centers on increasing the property tax credit to $500 and making
it more available to both the poor and the upper-middle class.
The Democrat-controlled finance committee
scrapped Rell's proposals to eliminate the property tax on cars
and the estate tax, along with her plan to accelerate the phase-out
of the 15 percent surcharge on corporate income taxes - a key priority
Instead, the committee voted 39-10 for a $275 million tax-cut package
that includes $30.5 million for a new earned income tax credit for
the working poor - an idea that has been rejected repeatedly by
the legislature as being an expensive credit for people who do not
currently pay the state income tax.
Rell's car-tax plan had been widely
derided by Democrats as a shell game: Drivers would no longer pay
town property taxes on their cars, but would lose the property tax
credit that now reduces their state income taxes by up to $350.
Because the credit phases out at higher incomes, Rell's plan was
seen by Democrats as more advantageous for the wealthy.
"The bad part of the car tax [plan]
is it was an income-tax increase on the middle class," said
Rep. Timothy O'Brien, a New Britain Democrat. "If I have to
choose between a Cadillac [owner] in Greenwich and a middle-class
homeowner in New Britain, I'll choose the middle-class homeowner
in New Britain every time."
Rell is not giving up on the idea,
and it is expected to be reintroduced as she negotiates a budget
deal with the Democratic legislative leadership in the coming weeks.
The state Republican Party will begin running radio advertisements
today with Rell urging consumers to call their legislators to support
the idea. They have also created a website, www.endcartax.com, and
Rell's supporters are sporting bumper stickers with a red circle
and slash over the car tax and the words "Thanks Jodi."
"Their real problem with it was
Governor Rell proposed it," House Republican leader Robert
Ward said. "This [Democratic package] is an opening salvo as
a prelude to budget negotiations. That's all it is."
Despite the differences between the
parties, Ward and Senate President Pro Tem Donald Williams said
they expect the two sides can reach a deal by the May 3 adjournment
The bill approved in committee Monday
would be the widest expansion of the popular property tax credit
since it was created nearly 10 years ago. For the first time, the
credit would be refundable, meaning that households earning too
little to pay the state income tax would still get the credit. Now
only taxpayers who owed at least $350 in state income tax are eligible
for the full $350 credit for the 2005 tax year.
The Democratic bill would increase
the maximum credit to $500 annually starting this year and expand
the eligibility for the full credit to individuals earning up to
$75,000 annually and joint filers earning up to $150,000. The credit
now begins to phase down for individuals earning more than $55,000
and couples earning more than $100,500. Couples earning more than
$190,000 receive no credit at all, but the bill would increase that
threshold for couples earning up to $240,000.
The committee also approved a provision
that those who now receive the federal earned income tax credit
could "piggyback" on that and receive an additional 10
percent credit from the state. Taxpayers with incomes of less than
$11,750 and no children, along with families with two or more children
and annual income under $37,250, were eligible for the federal credit
in 2005. The mayors of Hartford, Bridgeport and West Hartford are
expected at the Capitol today to endorse the plan, which supporters
say would help at least 168,000 households statewide.
The committee's plan "does not
help the wealthier residents disproportionately," Williams
said Monday. "This is much more directed at middle-class tax
relief. This is a reasonable tax relief plan that is fair."
But Rell's budget director, Robert
Genuario, said the combination of the budget approved last week
by the appropriations committee and the tax package Monday would
lead to a deficit of nearly $1.3 billion in the 2008 fiscal year.
Although the state is running a surplus in the current fiscal year,
it cannot afford a 17.2 percent spending increase over two years,
"We've got a lot of work to do,"
Genuario said Monday. "Frankly, I think you have to scrap the
appropriations package if you're going to do tax cuts. ... It just
Besides rejecting Rell's car, estate,
and corporate surcharge proposals, the committee also rejected her
call for a 25 percent, across-the-board cut in the public utilities
tax that would have saved an estimated $45 million for businesses
and consumers on their gas and electric bills. Rell cited this tax
Monday in relation to the decision by the Franklin Farms mushroom
company to move its production to Pennsylvania, partly because of
skyrocketing energy bills.
The legislature's work so far this
session "has been bad news for business," Rell said. "If
the legislature does not wake up soon, it is inevitable that there
will be more unfortunate stories like Franklin Farms."
The multifaceted Democratic bill also
includes deductions on the state income tax for long-term-care insurance
premiums and college-savings payments into the state's Connecticut
Higher Education Trust plan. Republicans were outraged, saying that
placing deductions into the relatively simple state income tax would
send Connecticut down the road toward the highly complicated federal
income tax system. One predicted that next year the Democrats would
want further state deductions for mortgage interest and medical
"This bill is looking for love
in all the wrong places," said Sen. William Nickerson, a Greenwich
Reprinted with permission of the Hartford Courant.
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