Democrats at the state Capitol are divided over how to balance the proposed two-year budget before a June deadline.
Elected leaders in the Connecticut House and Senate want to close the state’s budget deficit by increasing the rate on capital gains taxes, taxes levied on stocks, bonds, and real estate.
Speaker of the House Joe Aresimowicz said House Democrats are not enamored with the governor’s budget that would enforce the sales tax on hundreds of millions of dollars’ worth of goods and services.
Meanwhile, state Sen. John Fonfara, a Democrat from Hartford, proposes increasing the statewide sales tax by a half-penny on each dollar spent to help low-income communities, something Gov. Ned Lamont and the Democratic majority do not currently support.
The proposal by Fonfara, who is co-chair of the tax-writing finance committee, sets up a new clash over taxes and spending during the next five weeks as Connecticut lawmakers try to reach a budget deal before their legislative session ends on June 5.
The proposed increase in the sales tax to 6.85 percent, up from the current 6.35 percent, would raise an estimated $340 million in the fiscal year that begins on July 1.
Instead, Aresimowicz said his 91-member Democratic caucus favors raising taxes on some of the wealthiest Connecticut residents, specifically increasing the tax on capital gains for individuals or couples making more than $500,000 per year.
“We believe those that are doing very well are obligated to pay their fair share,” he said.
The Democratic majority leaders said there isn't much support for Lamont's proposed expansion of the sales tax and that momentum among state lawmakers appears to be growing for a proposed 2 percent surcharge on capital gains for the state's wealthiest residents.
Aresimowicz said that adding purchases such as child car seats, bicycle helmets, college textbooks and diapers to the list of proposed items subject to a wider sales tax, is getting much criticism.
In his two-year budget plan, Lamont asked for a variety of new sales and service taxes, from media downloads like Netflix and Hulu, to prescriptions, dry cleaning, winter boat storage, haircuts, legal work and accounting contracts -- all of which have been exempt.
The governor's initial budget proposal also included taxes on sugary drinks, plastic bags, wine and liquor bottles, tobacco and vaping products.
By considering taxes on those products -- and possibly groceries as previously reported here -- Lamont said he aims to reduce the nearly $4 billion two-year budget deficit.
Aresimowicz and House Majority Leader Matt Ritter spoke to reporters before a legislative session in Hartford on April 23. Aresimowicz, a Democrat from Berlin, said: "People are making a great deal of money and they're successfully dodging some of the tax laws, or not paying the tax that they once would have at the federal level."
"A lot of our caucus members have told us that they are frustrated at the lack of rhyme and reason with the sales tax exemptions, and I think the governor was trying to get at that," Aresimowicz said.
Senate President Pro Tempore Martin Looney, recently voiced similar views.
Projections show that a surcharge on capital gains -- mostly investment income and property sales for those in the highest tax bracket -- could raise $200 million for the state budget. "We think it's a basic fairness issue," Aresimowicz said.
"I’ve been pretty tough. I want to draw the line," Lamont said. "I don’t want to increase tax rates on income tax, capital gains tax rates and corporate. I’m trying to get this state to live within its means."
Connecticut’s top rate on capital gains taxes is 8.99 percent, slightly higher than the highest rate on standard income, 6.99 percent.
Fonfara said the bill is a multifaceted measure to help the state’s cash-strapped cities and about 60 communities overall among the state’s 169 municipalities.
But Lamont rejected the idea in the same way he has repeatedly opposed any increases in the rates of the personal income tax or sales tax.
"The governor’s preference is to broaden the sales tax base and capture uncollected revenue from areas of growth, rather than increasing the overall rate, just as he outlined in his proposed budget," said Maribel La Luz, Lamont’s spokeswoman.
Aresimowicz, the leader of the 91-member House Democratic caucus, said he supports the concept of helping lower-income communities, but he said that raising the sales tax on the middle class and the working class "seems unfair."
He said it makes no sense to increase sales taxes that would be paid by low-income earners, who often live in cities, and then return the money back to those same communities.
Aresimowicz already expressed concern about Lamont’s call for extending the sales tax to numerous items that are now tax-free, including haircuts, diapers and veterinary care.
"I believe that the governor’s initial budget proposal was too heavy on what I would call middle-class and working-class tax increases,'' he said. “My caucus expressed a desire to have a fairer system. That’s why we proposed the capital gains tax” increase.See Attachment