Panel Rejects Rell Tax Cut Plan

Democrats Focus On Property Tax Credit

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 for business.

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 date.

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, Genuario said.

"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 doesn't work."

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 payments.

"This bill is looking for love in all the wrong places," said Sen. William Nickerson, a Greenwich Republican.