On the Record; 715

The following is a CB TV original. Thank you. I'm Bob Douglas and welcome to this week's edition of On The Record. Two key members of the state legislature's tax writing Finance Committee join us today. We welcome State Representative Richard Mulready he's a Democrat of West Hartford and he is the co chairman of the Finance Committee. And we welcome State Representative Richard Belden Republican of Shelton the committee's ranking member. Joining us is Larry Williams the state capitol bureau chief for The Hartford Current. To both of you thank you very much for joining us on the radio. Your committee held the first major public hearing just the other day at the state capitol taking a look at various repair packages you got kind of a mixed reaction from about 50 people who appeared

before the committee. What plan is now set in concrete if anything and what can you get passed if anything. We have caucused after the Democrats on the Finance Committee caucus after the public hearing the next day. A couple of times and we've put together a repair package that we propose to submit on Monday the next committee meeting and perhaps to take a vote on. And that plan has several important elements to it. It calls for in the case and in the examples I use will be for joint filers. The numbers change a little bit for heads of household and for a single file. But it calls for a split tax rate keeping a 4 and a half percent tax rate in place for those joint filers who earn less than half of $45000 a year going to an upper. Income rate that is those above one hundred forty five thousand of six and a quarter percent and then creating some deductions or exemptions that would allow those up to one hundred forty five thousand dollars to

get a bit of a tax break. The major components of the exemptions or deductions include $1000 per dependent exemption for children and or elderly parents. One might support it involves a slower phase out of the standard deduction in that case $24000 so that so that the taxable income for those people up to I think eighty two thousand dollars will be a little less therefore the tax would be a little less we smooth out the so-called cliffs a bit. You know as you know for lower income people we have a tax credit that comes into play and we smooth those out a little bit so that people will find themselves in the position of earning another dollar an income and paying tens of dollars maybe 80 90 dollars more. And those are really the key components of it. We also give a little bit of a break to single file this in the sense that we increase the standard deduction from 12000 to 12000 to 50. So those are key elements and I guess I forgot one more I should add which is a formula for what I guess I could only describe as modest property

tax relief. We will we have devising a fund but today that's not fully set. We haven't got the fund in place but something that will involve for those with relatively low incomes and high property taxes which would tend to be the people in the big cities but could apply anywhere through it throughout the state. A modest deduction for credit really against the income tax a portion of their property tax payments represented Belden from the Republican side of the aisle your reaction to what you heard and what the Republicans prepared to support. We really haven't gotten together yet to discuss that as Republicans. Since it was announced yesterday. But let me just say I think the property tax relief is a very complex doesn't take into account rental renters renters who also pay taxes indirectly. And so I think that part of it certainly gives me great concern. The second thing that gives me great concern is the fact that we're

now going to go to a two tier tax system. Increase the taxes on the quote rich singles making over at least 72000 and married filing jointly over one hundred forty five thousand. We're going to say to them. For those who have worked hard and or become successful success will cost you. And what we've got to realize that it's very easy for people to move in. And so we have to try to consider in whatever the package turns out to be whether or not we're driving wealth and the ability for people to spend them invest in Connecticut out of the state. So I hear that publicans was supporting was one that had a top bracket rate that's even higher than the six point to five percent rate so I'm a little puzzled by the Republican opposition to this. The piggyback tax would have an effective top rate of seven point to 85 percent. It's a complex number because it's based upon the federal rate of 31 percent. Why I support that and not

support this. Well when you say the Republican supporter I think you know that's the first misnomer of this whole exercise it's been going on. Our position was and talking with our counterparts was to try to get raised to various bills that cover the entire spectrum of what could be considered so that the public would have an opportunity to come in and talk about all of the various aspects. I offered a bill that also was a very minor repairs of the current tax cuts in effect and so. Requote Republicans weren't on the board saying this is what we absolutely have to have you know I think we're going to see is is everybody reflective of their district has a little different opinion of what is best for the state as it relates to your district what your district opposed the Democratic plan that would provide a middle class tax cut in the lower class tax cut in exchange for a have a higher tax on the rich.

What would be the reaction in Dick Belden's district. Well I think the knee jerk reaction would be immediate would be reduced a middle class taxes. No you don't understand we're talking about here we're talking about complicating this whole tax structure immensely for about $90 average per individual tax relief in the quote middle class if you talk about. The amount of money that's going to be switched from the middle class through to the so-called rich. We're not talking about massive amounts of money per person. So I think we really have to consider what these high tax rates you know going to tear system were one year into this or second year that this tax program. Talking about a two tier tax system. What's next year what's the year after is it a three tier is it eight and a half. Where are we really going and what are we doing to the wealth of the state of Connecticut. We've already seen some of it leave here because of the income tax. And when it was initially put into place we have a lot of people now who spend six months and one

day in another address. And I think that has some effect on her ability or overall wealth in the state. A couple points that may have been some people left because of the income tax. But I think that we're driving many more people out of the state with the prior tax system which had as you know up to a 14 percent tax on interest dividends and seven percent or so on capital gains with no offsetting capital loss deduction against capital gains. So I think that this that the funding the income tax as a proposition that that it clearly made the state more more competitive and made it more attractive in many respects because of course it came along with some lowering of business taxes particularly through the lowering in the sales tax from 8 to 6 percent. I would tend to agree with that on a personal basis as opposed to a Democratic caucus basis and as chairman of the committee I need to reflect somewhat the caucus's position that I would prefer not to see a split rate

that I would prefer to see a flat rate. Clearly you could get some sort of middle income relief tax relief do deductions and exemptions such as you know if you didn't get your way and that's what. When it's out there now at least that appears to have the Democrats uniting around it it also appears Republicans are not going to vote for it and it must be said too that Governor Weicker in a speech Friday in Middletown said things that sounded very much like Dick Belden. How are you going to get past his opposition. We don't know. As as you know we spoke with the governor. We being the leadership of the House and Senate. Plus Jim Maloney the chairman of the Finance Committee met with the governor on Thursday afternoon and spoke with him about the plan explained it to him. He expressed. Some concern about a two tier system using many of the same words. It is a matter of fact the broad also said that

he through the Office of Policy Management Bill cbus would do their own analysis of it that he would not give us a knee jerk reaction at that point that he would veto which would be for example to keep an open mind look at the effects on various people in you know address himself the issue of whether he thought this two tier system was one that would be harmful to the creation of wealth and the question of keeping people of high incomes in the state and discouraging or encouraging. Others to relocate to the to the state with their businesses so that top rate compared to some of the neighboring states. In Massachusetts the top rate is five point ninety five percent on earned income it's 12 percent on certain forms of on an income like interest and dividends. In New York the top rate is typically when you can buy and city of New York in taxes and some of the other taxes some of the localities in excess of 7 percent I think 7.5 percent in some localities in

Rhode Island as we know they have a piggyback system and when you apply the 27 percent I think they have a split. Yes they have a great heart rate. It's a two part rate on the piggyback and you get up close to 9 percent that the top marginal rate. So we compare pretty well with those states around us. But I'm not so sure that that's the direct competition direct competition maybe Florida which does not have an income tax. Texas which is not an income tax. So we're OK in terms of our surrounding states but I'm not so sure that's a direct competition for jobs and such. There are some people as you well know testify the other day at your hearing who called for some tax increases. Looking for some more money for the cities and for other programs. Is this going to have to be a package that is revenue neutral. Are you going to be able to keep the package dragoon neutral or are we going to see a tax increase here. Yet we clearly with this package you're talking about a revenue neutral package that is we

will not raise more money than is being raised under the existing tax. We don't know what the ultimate but budget deliberations will be we haven't seen the governor's budget yet we don't know what will come out of the Appropriations Committee so we don't know what position might be taken on taxes a little later in the session. It's it's my hope and I'm sure it's hope and hope and most of the people that we can do whatever we need to do on the budget side on the expenditure side not deal with raising any taxes I might add briefly to that that in the course of any year any normal year and we haven't had a normal year in the last three or four. But in the course of any normal year the finance committee always deals with tax inequities tax incentives. What I would consider to be normal tax modifications to what our system and I'm sure that that'll take place. You can. Are you concerned that a tax increase of some sort might be looming on the horizon or is this going to be neutral.

Revenue neutral. Well I think the repairs it's called it's not revenue neutral probably won't pass. Even even with my colleagues on the Democrat side. So I think this package will essentially be revenue neutral whatever whatever it turns out to be the next couple of weeks. And I would agree that the with Rich that will be a lot of adjustments but I think our goal has to be to keep spending in line so that there need not be any additional tax increases I think the public is really demanding that and I think that has to be our first priority to try to meet that goal. Do you have the sense now that the anger the bitter anger and the frustration that we saw a couple of years ago with the 40000 plus people at the state capitol is that anger now over with. I mean you had 40 or 50 people at the hearing the other day just held a year and a half ago. It probably would have been standing room only for a couple of days or we had four days of hearings for Detroit that was well into the night we had the whole day Saturday that went late into the evening and in others it went till 10 11 a whole bunch of mine armed to a fight.

That's right in fact set up metal detectors and we had a half dozen people who looked at the metal detectors and turned and went away without coming in. Is that battle over with. Yes I certainly would not say that people are happy with the income tax but I think the vast majority of people accept it as as a necessity. I would prefer not to have it as I would prefer not to have as any of us would prefer not to have it. But I think they recognize that it was a necessity and so they're accepting of it. If not happy with it at all. Well I think they are beautiful somewhere. Repeal the income tax. Probably very early in the session. Maybe you know this particular piece of legislation. I think so that the air is clear and people understand where the whole issue stands. But the current legislative body that we have right now. You know I think the sooner that probably occurs and we understand where everybody is that the better off we get on with our business. One of the things we've talked about and haven't had an in-depth discussion with

Dick about it is whether we raise another bill so that we in fact give people an opportunity to vote on the repeal issue. From a personal preference point of view I'd like not to junk up this bill with that note I'd rather prefer to have a separate vote on that because. Because interestingly at the end of last year we had a bill that came out of committee. That we've proposed to repair a referendum. A member was tagged out of the repeal a man was tagged out of a sunset requirement was ultimately tagged out of one of the other. And I also prefer to get the repair package because it had all those types of issues associated with it. So if so I would hope that we'd be able to have a separate vote on repeal and then put that behind this or for some strange reason that got the requisite override vote. The whole issue of you had to let me ask you about a different time to chill him down. Let's not talk about the income tax for a change and talk about something new that Weicker introduced to the

debate. Or intends to introduce to the bait debate next week. A bottle tax this would be a nickel a bottle that unlike the deposits that we now pay would not be refundable. What do you think of that proposal which I'm not crazy about it. I I think that the the posset law has had some measurable impact on the whole recycling campaign. I think if we. Take away the return of the posit the five sense that that it will move us in the wrong direction in terms of recycling where we ought to be headed and continue to be beheaded. So as so I'm not too crazy about that proposal if in fact he felt there was a need to raise taxes that particular component just spreads but sales tax about another 5 cents or may not be sales tax an excise tax or whatever it is then the other proposals that I personally I'm not in favor of any particular tax increases.

I'd rather deal with the spending side but I don't think that we should shift the 5 cents from a return to a tax. I think 5 cents is an additional tax that I don't think will be supported by many. There are many other downsides to this in the recycling law that we have and I did co-sponsor the bottle bill back in the 70s and it worked. The village and we get that in place. Currently the recycling efforts in the regional areas in the state of Connecticut the Hartford Connecticut Bridgeport area. Part of the income stream that comes into those recycling operations is from the the bottle returns. You can return it if the if the. Deposit is taken off and then that will have a negative impact on the current recycling operations which the towns in fact pay for in their refuse disposal cost. So I don't see any plus to that I think that it seems to be some concern rolling along

here that the wholesalers are keeping a lot of the deposit money but if you want to try to address that or other ways to do that. But yeah I happen to think that that the reason that I proposed that is the balances budget. You know that it's that and that is nothing more than a device to do that I think from a philosophical point of view he probably supports the recycling effort in fact I'm sure it does and but is looking for a means of covering some gaps in the budget. You expect the governor to propose an extension of the sales tax to some of the goods and services and there been some speculation about maybe the so-called sin taxes higher tax and cigarettes maybe liquor. Can we anticipate that do you think in next week's budget address by the governor. I think he was addressed before the General Assembly on opening day he did talk about. Not changing the rate of the sales tax and he was very emphatic about that. Which kind of led a lot of people to speculate that he may try to recommend expansion of the base.

I would hope that he will try to put a budget forward as I see the whole process right now. There is a tentative with a hundred million from gambling as additional revenue there's a there's a world of 300 million dollar gap between income and expenditure as if there's none of the programs. Here again my goal would be to try to figure out if we could narrow that gap to zero. So should be our first priority. And if we can't then I guess we have to look at other tax alternatives. One of the Finance Committees of lesser known jurisdictions besides the income tax is a property tax assessment practices and over the past 10 15 years there's been an effort at the legislative level to very slowly bring the state property tax assessment methods to improve them so that there are lesser gaps between times when evaluations are done and so forth then on the other hand there's also been some shrinking from that goal in the form of a loud phase ins over five year

periods and in the form of a continued deferral of the deadline by which towns have to get to a 10 year re-evaluation schedule. In fact I think it's become sort of an annual event at the legislature that you pass a bill that changes the date by which every town has to do it every 10 years and in this way three or four maybe more towns escape punishment under that law. Are you going to change that date again this year as well. We generally haven't changed the overall date what we've done is we've allowed anywhere from 1 3 to 4 5 towns to have a specific exemption. I'm with the move that date back. I don't happen to favor that. I was one of those who strongly supported the idea of statistical revaluation upgrading the computer systems so allowing towns to do their evaluations much less expensively. I did know when we were screening proposed bills yesterday that there was one town I forget which one that asked for an extension of the recess and it's the only one I've seen so far

is somewhat downstate in the New Haven area but not no haven. And no I did as a general principle I don't support that I think that it's important for towns to revalue in it's a significant problem though as I'll give an example in the city of Hartford they revalued 1089 a significant shift from personal property to real property. Which means that commercial property taxes and residential property taxes went up greatly in some cases doubled the price for that. Part of the law said that they didn't have to do is to School revaluation 5 years later rather than 10 years later that's coming up in 94 with what's happened in terms of property values the city of Hartford is looking at perhaps a billion they have a dollar decrease in their grand list when they revalue do the revaluation and then 90 forces whole that's a long winded way of saying that this whole issue of property taxes is the

next big. Problem facing the state of Connecticut I agree with that. Right I filed a bill. The year before your income tax became law that would have penalties for towns that did not comply and was very kind of a unique situation because the bill it ended up tacked on to the income tax. Proposal as it was a part of that and I was unable to vote for my own home for process. But you know what matter what kind of taxation we're talking about there has to be a fairness of it and to have a town that goes 14 15 16 years without having a re-evaluation. The fairness is totally gone and it's not fair to the various components of our tax structure in the town or to the to the other towns around it because many of the formulas in the state of Connecticut are are all based upon what's going on locally and they do statistically try to adjust even though they haven't done a re-evaluation. But I think it's wrong to to to have a double standard

for how we treat people. Well your law says that if a town misses that deadline they will be penalized. I believe it's the loss of 10 percent of state aid. Now be honest here do you think the legislature is ever going to penalize any town with a loss of state aid for not revalue because it appears so. We've got about five minutes left. You may be getting in some form before it's all over some kind of a casino bill the vote for or against either through the committee or as legislators in your chambers. The the casino issue aside for now the deal that the governor has apparently cut with the National Talk AP quad Indians the hundred million dollars that we supposedly will be getting down the road. Do you think that that should be challenged by the legislature I know you talk a lot about process and you think it should be challenged by the legislature did the governor do an end around the legislature and say look I think we're still trying to figure that out legally.

I have very serious concerns in a couple areas one is consent decrees and the other is any of these major type of agreements that in fact affect the policy in the state of Connecticut. As I see the ARB process the legislature is the board of directors of the state of Connecticut at least that was the policy the executive branch carries a policy out and we can in fact and do delegate certain authorities to the executive branch because we're not here today. But I have serious concerns and consent decrees and major policy switches in the midst of a major policy change and perhaps we may have to address that in our in our process this year as to whether or not we want to put some flags up that say that specially consent decrees. You know if if there is a court case such as a school desegregation issue sitting there and under the current process the governor can strike a deal on behalf of the citizen of the state of Connecticut. And I think that that's a policy decision that should be back with the board of

directors of legislative branch of government and that's the question. Yes he clearly didn't run around the legislature. The unanswered question is whether or not it was legal. We're expecting an attorney general's ruling any day now. So I don't know whether it was legal if it was legal. That's fine although I think the legislature should have taken it up. If the attorney general said what he did was in fact within his power that I would not support the legislature challenging that action which he took. I also think they'll be a casino bill this year that we'll deal with. I think the governor did a preemptive strike and probably took most of those people who were on the fence would have liked to have gotten the revenue from casinos and Hartford Bridgeport slots and various other gaming facilities throughout the state. And I think that he probably changed the numbers a bit. And it is much less likely if it all likely before that they'll be casinos approved in Hartford and Bridgeport in the two years that

it appears that he's insured his ability to carry a veto. There may be more bills in this session to do away with the renewal fee on vanity plates and anything else. And I wonder if the two of you could comment on whether you think you will do away with when you'll feel on vanity plate which is only a year old. Probably not told myself so you could say you're biased. It's quite unfair. Why is it unfair. Well because how many times do you pay for the privilege. I mean when you in fact order a vanity plate you pay more. So should you pay more every year when there's no additional cost involved. The whole concept of. The initial large charge for a vanity plate was to pay for that little privilege of having war. You know I just don't think it's fair. Why is it there and that's a true one argued fair or not fair that I mean I guess I'm going to argue reality with the with the state in the bind that it's in the

fiscal bind that it's in we can't afford to give up a lot of revenue. I don't remember the numbers in that I think there are a million two million dollar range small relatively small. Well I mean it was a revenue anyway possible you made by people getting in there get through and there were places like these in the cigarette taxes what you do is make Massachusetts Rhode Island New York. Well that well that's a good point. Somebody asked earlier about the cigarette tax the possibility of additional sin taxes on cigarettes and liquor. My personal opinion is that if we raise them again we probably lose revenue. Yes Massachusetts has raised cigarette tax significantly New York has either just done it or was about to do it I'm not sure which one of the things I'm having. Our office of fiscal analysis look at is whether in fact if we lowered those taxes we might get more revenue. OK thank you. Good timing and we're out of time. Thank you gentlemen very much for joining us this week. Our guests have been state representative virtual Moretti Democrat of West Hartford and State Representative Richard Belden Republican of Shelton. Our thanks to Larry Williams of The Hartford Current

and Bob Douglas. Please join us next time for another interview on the record.