Boucher: Budget Proposal Part One — Sticker Shock

goes to taxes first and not spending cuts. In a recent Finance Committee public hearing Senator Toni Boucher (R-26) questioned the Office of Policy and Management about the fairness of this proposal, a video of which can be seen here.

"We lost 100,000 jobs in the private sector last year, yet state government did not share the 'pain,' no jobs were lost on the state payroll," Boucher said. "Now, after turning a blind eye to the pending catastrophe, the governor has asked taxpayers and businesses are asked to sacrifice again before any meaningful spending reductions. This is not fair to my constituents."

There are $3.3 billion dollars in tax increases over the next two years ($1.7 billion in fiscal years 2012 and $1.6 billion in fiscal year 2013) and only $758 million in spending reductions from current services. This will be the largest tax increase in state history and the fourth largest in the country. Boucher believes that this is not how to get our fiscal house in order.

A report from the non-partisan Office of Fiscal Analysis found the proposed budget relies on 58 percent in taxes, 13 percent cuts and 30 percent in possible union concessions.

Boucher’s concern centers on the 20 percent of Connecticut taxpayers who pay 80 percent of the taxes.

"These budget proposals not only punish the middle class, but target high income earners and small business owners who represent nearly 75 percent of our private sector jobs. If all of these new taxes are enacted, there would be no incentive for these businesses to stay. They also add to our reputation as having one of the worst business climates in the country," Boucher said.

Last year the income tax on our highest earners, job creators, was raised from 5 to 6.5 percent. Businesses were also assessed a 10 percent surcharge on their profits, representing the fourth largest tax increase in the country. This budget once again increases their tax on income to 6.7 percent, nearly two percentage points in two years.

Governor Malloy is also asking for a 3 percent luxury tax to be added to a new 6.5 percent sales tax for a total 9.25 percent tax on luxury items. A $1,000 piece of clothing would be taxed at 9.25 percent. A $5,000 piece of jewelry would be assessed a 9.25 percent tax, a $50,000 car would be assessed a 9.25 percent tax and a $100,000 boat would be assessed a 9.25 percent tax.

Some may say that those who can afford to buy the luxury items can afford the tax, but Boucher says that “people won't buy those items and will hold on to their money or buy them elsewhere. The businesses that sell the luxury items will be hurt. The people that make or build these items will be hurt."

Malloy is proposing to lower the threshold for the inheritance tax, commonly referred to as the death tax, from $3.5 million to $2 million, reversing the reforms enacted last year. This would give Connecticut one the highest inheritance taxes in the country, exacerbating the flight of our seniors to other states.

This proposed budget also includes a higher tax on middle income earners. Those who file jointly at $60,000 a year will see their taxes go up 38.5 percent. Those who file as a single making $40,000 a year will see his/her taxes go up 25.4 percent. This income tax increase, added to the effect of an increased sales tax is devastating to hard working people who are the back bone of our state.

There is no lower rate on the first $10,000 earned for an individual making $56,500 a year and for the first $20,000 for couples earning $100,500 a year. The 3 percent tax will be phased out and they will be taxed at 5 five from the first dollar earned. On top of all this, these new income taxes will be retroactive to Jan. 1, 2011, meaning that earners will be hit hard from the moment they new taxes take effect.

The $500 property tax credit is eliminated in this budget and items like pet grooming, car washes, haircuts, and aspirin and clothing under $50 will all be taxed at a rate of 6.25 percent, up from 6 percent.

There is a new higher gas tax and there will no longer be a tax free week to buy school clothing for children. One of the more unusual taxes comes in the form of taxing money not spent. If you are a family who uses coupons you will be taxed on money you thought you saved. For instance a $10 item that you use a 50 percent coupon on would cost you $5. But instead of paying sales tax on the $5 dollars the Malloy budget would have the consumer taxed on the entire $10. It may mean paying only 62 cents versus 36 cents, but it's a tax on money you aren't spending.

Connecticut’s unemployment rate is currently 9 percent. Federal Reserve chair Ben Bernanke was recently quoted as saying, "It will be several years before the unemployment rate has returned to a more normal level." He added that "until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established." He told lawmakers it will take years to bring the unemployment rate down to a more normal level of 5 to 6 percent.

This is not the time to tax our residents more. The legislature should look at this proposed budget as a frame work, and consider cutting spending before asking its citizens to sacrifice more. They can no longer afford it.

(Editor's note: This is the first in a series of two pieces by Boucher analzying Malloy's proposed budget.)