May 4, 2011 / 6:27 PM / 9 years ago

Connecticut House OKs budget, widespread tax hikes

NEW YORK (Reuters) - Connecticut’s Democratic-led House of Representatives has approved a new $40.1 billion, two-year budget with widespread tax increases on personal income and goods ranging from cigarettes to luxury items.

Freshman Governor Dannel Malloy, who bucked anti-tax policies that swept Tea Party-backed candidates into office last November, is expected to sign the budget into law on Wednesday afternoon following the house approval late Tuesday.

The Democrat has repeatedly called for shared sacrifices from all state residents, including public employees.

Unless state workers agree to $2 billion of concessions, layoff notices are expected to start being mailed on Friday. This mirrors a trend seen around the nation as states increasingly turn to layoffs to balance their books, potentially gouging GDP growth by half a percentage point.

Connecticut, like many states, is starting to see revenues recover from lows hit during the recession. But Malloy refused to back down on almost all of his tax increases. One exception was the increase planned for gasoline, which was dropped.

House Democrats rejected the Republican two-year budget plan, which totaled $6 billion less and raised no state taxes.

So the state’s top income tax rate for wealthy individuals will rise to 6.7 percent from 6.5 percent and the estate and gift tax threshold will fall to $2 million from $3.5 million.

Though Connecticut competes with New Jersey and New York for jobs and residents, its top income tax rate will remain about 2 percentage points below those of its neighbors.

For all consumers, sales taxes will rise to 6.35 percent from 6 percent. But only the rich will be paying a 7 percent levy on cars that cost more than $50,000, boats that cost more than $100,000, jewelry — real or faux — that costs more than $5,000 and clothing or footwear that tops $1,000.

But the new budget will also make people who buy clothing and footwear that costs $50 or less pay sales taxes. And a $500 annual property tax credit was cut to $300.

Still, Malloy created an earned income tax credit to help lower-income individuals.

The new budget imposes sales taxes on a wide range of services, from yoga classes to cosmetic plastic surgery to manicures, pedicures and spa services. A cabaret tax also was created that the state will collect and return to localities.

The cigarette tax will rise 40 cents to $3.40 per pack, the diesel fuel tax will go up 3 cents to 29 cents, and alcohol excise taxes will climb 20 percent. The current 10 percent corporation tax surcharge that was set to expire will instead double for the years 2012 and 2013.

Like a few other states, Connecticut also wants to charge sales taxes on Internet sales though its peers have had trouble enforcing similar requirements.

For more budget details, please see: web site: here

The new 2012 budget that starts on July 1 totals $19.8 billion, a 2.14 percent increase in appropriated funds over the current budget. The 2013 budget is $20.285 billion, an increase of 2.32 percent.

The budget boosts job creating tax credits to $20 million from $11 million. Malloy said his plan will speed job creation. In a statement issued just after midnight on Wednesday, the governor, who inherited a multi-billion deficit, said: “This budget is balanced, honest, and contains none of the gimmicks that helped get us into this mess.”

Reporting by Joan Gralla; Editing by Andrew Hay

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