On spending and taxes, Democratic legislators took their lead Tuesday from the more moderate fiscal positions of Gov. Ned Lamont, less a surrender to the governor than a postponement of a debate still to come.
The legislature’s Finance, Revenue and Bonding Committee gutted a bill to boost income taxes on Connecticut’s wealthiest, siding with Lamont over progressive lawmakers. The new measure makes no change in tax rates, mandating only a study of the capital gains income of the state’s top earners.
The action in finance came as Democrats on the Appropriations Committee were explaining why tens of millions of dollars in proposed spending increases were being scrapped. The goal, sources said, was to bring spending proposals for each of the next two fiscal years in line with the total amounts the Democratic governor offered in February.
Democrats control the General Assembly with solid majorities, but the House and Senate caucuses have yet to solidify behind the fiscal moderation of a Democratic governor intent on improving the state’s fiscal and economic standing or the progressives frustrated by years of relative austerity.
The tax and spending packages to be adopted by the finance and appropriation panels are widely seen as the starting point for negotiations with the Lamont administration.
Sen. John Fonfara, D-Hartford, and Rep. Jason Rojas, D-East Hartford, co-chairs of the finance panel, insisted the capital gains surcharge proposal hasn’t been abandoned.
Once the finance and appropriations panels complete their recommendations this week, legislative leaders and the Lamont administration still must negotiate a final budget plan for the upcoming biennium.
Progressive Democrats, particularly in the House, have been pushing for a capital gains surcharge to counter what they argued were too many tax hikes aimed primarily at low- and middle-income households.
Fonfara and Rojas had raised a bill two weeks ago that would have added 2 percentage points only to income from capital gains by single filers earning more than $500,000 annually and to couples topping $1 million.
Though fiscal analysts had not projected a specific revenue gain, legislative leaders said preliminary estimates held the tax would bring in at least $200 million per year.
Lamont, who has insisted Connecticut not increase income tax rates, still is trying to close projected deficits of $1.7 billion in the upcoming fiscal year and $2 billion in 2020-2.
The new governor’s solution relies heavily on increasing revenues by eliminating sales tax exemptions and imposing new or increased “sin taxes” on sugary drinks, plastic bags and vaping products.
These taxes are seen as more regressive. The administration has countered that while its plan is not as sensitive to wealth disparities as an income tax hike would be, it does have progressive elements.
Lamont has called the capital gains measure “a really bad idea,” and has cautioned repeatedly that he fears such a measure would drive wealthy taxpayers from the state.
“Over the course of the next few weeks, we have a lot of work to do as negotiations continue,” Lamont said in a statement released Tuesday. “I look forward to having more important conversations with my colleagues in the General Assembly in order to craft a final and honest budget which helps Connecticut grow good paying jobs, demonstrates that state government can live within its means and prepares our kids from Danbury to Danielson for a brighter economic future.”
Republicans, who lost seats in the last election and hold minorities in the House and Senate, largely have been silent on how to close the projected deficit.
Meanwhile, the Appropriations Committee met Tuesday and the Democrat-controlled panel adopted spending proposals for each of the next two fiscal years in a party-line vote. Committee leaders proposed a $43.3 billion biennial plan that strays very little from Lamont’s recommended bottom line.
But, like their counterparts on finance, leaders said they expect discussions to continue on progressive Democrats’ proposals to spend tens of millions more on health care, social services, education and municipal aid.
Rep. Toni E. Walker, D-New Haven, co-chair of the Appropriations Committee, cast the panel’s willingness to stay closer to the governor’s proposal, at least as a starting point, as a gesture to a new administration.
The budget echoes Lamont’s plan to replace a major, scheduled tax cut for hospitals with a modest tax hike. Even though the tax is a revenue item, it also triggers state payments back to hospitals, and the Appropriations Committee plan matches Lamont’s proposed spending in this area.
It remained unclear whether legislators will back Lamont’s plan to bill cities and towns for a portion of teacher pension costs. Sources initially said Democrats would back the bill, but Appropriations Committee leaders said the legislature’s position ultimately would be decided later this week by the finance committee.
Rep. Gail Lavielle, R-Wilton, a ranking member of the Appropriations Committee, said she’ll oppose any plan to have cities and towns contribute to the teacher pension costs “as long as the cities and towns have absolutely no say in how the pension rates are set.” Lavielle, the ranking House Republican on the committee, said the Democratic spending plan has too many uncertainties.
The Connecticut Conference of Municipalities said the proposal “would be the largest unfunded state mandate in recently memory” because it “shifts the financial burden to property taxpayers, and does not provide towns with control over teacher contracts.”
The committee plan boosts spending 1.9 percent next fiscal year, which nearly matches the 1.7 percent bump Lamont proposed.