Connecticut Legislators Propose Income Tax Hike

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Posted by Patrick M. Gleason on Tuesday, May 5th, 2015, 12:58 PM PERMALINK

Last week, Connecticut legislators bucked Gov. Dannel Malloy (D), discarding his budget proposal in favor of a plan approved by the legislature’s Finance, Revenue, and Bonding Committee that raises taxes by $1.8 billion over the next two years. Most of the plan’s new revenue comes from an income tax increase.

The budget approved by Democrat lawmakers, who control the state house and senate, raises the top marginal income tax rate from 6.7 to 6.99 percent for individuals earning over $500,000 annually and couples with income in excess of $1 million. Connecticut lawmakers characterize this as a tax increase on the rich, but they neglect to acknowledge the harm this will do to small businesses.

According to IRS data, this income tax increase would hit over 6,800 Connecticut small businesses that file their taxes under the individual income tax system. However, that figure only accounts for sole proprietors. Including the share of small businesses made up of S-Corps and partnerships, upwards of 8,000 small businesses file under the individual income tax system in Connecticut and would be adversely affected by the budget approved by Democratic state legislators last week. If approved, the hike called for by the legislature it would be the fourth state income tax increase since the levy was instituted in 1991. Gov. Malloy signed the last income tax hike into law in 2011.

The Finance, Revenue, and Bonding Committee-approved budget also raises $730 million in new revenue by expanding the sales tax base to include previously untaxed services, applies a surcharge to capital gains, and delays scheduled tax cuts. Gov. Malloy was quick to criticize the Democrat-approved budget, as well as the tax hike-free Republican alternative.

Gov. Malloy’s budget also raises taxes, but not as much as legislative Democrats are calling for. Over the next month legislative leadership will work with the Malloy administration to reach a budget agreement. Unfortunately for Connecticut taxpayers, though they already face the third highest state and local tax burden in the nation, politicians in Hartford appear likely to approve further tax hikes this summer. The question in Connecticut appears to be how much, not whether, taxes will go up this year. 

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