Officials Credit Strong Stock Market Performance And Higher Tax Collections
September 04, 2013
With Wall Street rebounding sharply and tax collections better than expected, the state is now scheduled to end the 2013 fiscal year with a surplus of nearly $400 million.
"The state's surplus should be a sign of cautious optimism for the future -- a good outcome, but potentially the result of one-time revenue windfalls," state comptroller Kevin Lembo said Tuesday. "The growth was largely driven by strong stock market performance and an increase in the federal capital gains tax rate that pushed future year gains into Fiscal Year 2013. The payroll component of the income tax, which accounts for 60 percent of the total income tax receipts, was down slightly from last year."
State officials have been concerned about the state's fiscal status in recent years, but they were surprised earlier this year when an unexpected influx poured into state coffers in estate taxes after some wealthy residents died.
Legislators who were expecting to collect about $150 million in estate and gift taxes for the year were stunned when the projection soared to $428 million -- the highest amount, by far, in state history. Some wealthy residents of Fairfield County died during the fiscal year, while others made major gifts to family members -- prompting them to pay the state's gift tax.
Although the fiscal year ended on June 30, the numbers were still being counted over the past two months. The final, audited calculation is due Dec. 31.
In addition to the extra tax collections, the state is reaping the benefits of bipartisan spending reductions that were approved by the legislature shortly before last Christmas. Spending in the state's general fund was up by 1.3 percent for the year, which is below the average growth rate of 7.3 percent in the four years preceding the recession in 2008, Lembo said.
The legislature has already decided to spend about $220 million of the surplus by pushing that money into the current fiscal year, which started July 1. The rest of the money -- $178 million -- will be placed in the "rainy day fund" for future fiscal emergencies.
The state had accumulated a rainy day fund of $1.4 billion during the boom years, but lawmakers depleted it in order to balance the budget before Democrat Dannel P. Malloy took office as governor in January 2011.
At least in some categories, state officials are not expecting another windfall this year as they believe that one-time revenues will be hard to duplicate. The official consensus revenue estimates by the legislature's nonpartisan fiscal office and the governor's budget office show that they expect estate and gift taxes to drop by more than half in the current fiscal year, back down to $172.9 million.
The state's budget situation has also been helped by changes in federal tax law and the expiration of tax cuts passed by President George W. Bush.
Because the capital gains tax rate increased on Jan. 1, many wealthy individuals in Fairfield County sold stocks in December 2012 to avoid the increased taxes. In the same way, some corporations made advance payments on stock dividends in 2012 -- meaning that Connecticut residents will not see those gains again in 2013. Wealthy people also made taxable gifts to avoid the higher rates that took effect this year.
The state income tax, which includes capital gains from the record-setting stock market, was nearly $165 million higher than originally projected. The state sales tax -- the primary indicator of consumer spending -- was up by 1.7 percent, but came in about $150 below what officials had been projecting.
Reprinted with permission of the Hartford Courant.
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