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The real size of Lamont’s tax hike: $751 million

February 23, 2019 GMT

The total of Gov. Ned Lamont’s proposed tax hikes is $751million per year — not $1 billion-plus, as you might have heard.

That 751 million figure is the amount taxes would rise by the second year of the two-year budget plan. I’m not calculating the first-year increases because most don’t take effect until either the second year or halfway through the first.

The biggest piece of the increase, by far, is a $520 million expansion of the state sales tax. The rate would remain the same, 6.35 percent, but Lamont wants the General Assembly to eliminate exemptions and add in services that are not now taxed.

The biggest of these sales tax expansions is a tax on legal services, which a state Capitol teeming with lawyer-legislators just might nix. That’s my bet.

Then we have $69 million the state would raise from real estate services such as appraisals, plus an added $7.9 million in “conveyance” fees for the sale of houses more than $800,000. Could those charges be connected to the fact that the Connecticut Association of Realtors went all-in for Lamont’s Republican opponent — spending about $600,000 against Lamont?

Nah.

Other big pieces of that tax, in order, are vehicle trade-ins (think the dealer will eat that one when it has to pay a tax on the value it pays you? Think again); engineering services; barber shops and salons; and digital downloads.

Some of this stuff seems simpler than it is. For example, the sales tax would exempt business-to-business purchases. That makes sense, as Lamont doesn’t want to raise the cost of doing business in Connecticut. But it adds a whole new layer of complexity and debate.

Good luck deciding what’s a business purchase and what’s a personal purchase if, for example, you’re a self-employed engineer already having to charge a new tax on your services.

The second biggest tax increase would come from a 1.5-cent-per-ounce tax on sweetened drinks, chiefly soda. Lamont wants it not for the money, but for our health. I say take it for the money, we could use it. But that’s not going to be as easy to pass as you might think, since it affects jobs. The beverage industry will say people will go over the state lines to buy their drinks.

You may have read or heard that Lamont’s tax increase is $1.7 billion, or some other number larger than $1 billion. Those numbers are wrong.

It’s true, the total amount of increased revenue in the governor’s 2-year, budget is $1.7 billion. That amounts to 7.4 percent of the $22.9 billion the state would spend in the 2020-21 fiscal year. But that larger number includes, for example, a $516 million hospital tax that was scheduled to expire. Extending it allows the state to gain $400 million in extra federal Medicaid reimbursement — so I’m not calling it a tax increase.

The larger number also includes about $125 million in other tax credits, exemptions and reductions that were scheduled to take effect this coming July 1. They include, for example, a surcharge on the corporate earnings tax that totals tens of millions of dollars a year. Lamont, like other governors before him, is saying, let’s postpone those tax reductions.

I don’t count those as tax increases, either.

Then there’s a $49 million shift of a small part of the state’s $1.3 billion payment into the teachers’ pension fund. Former Gov. Dannel P. Malloy had wanted to make this a $400 million payment from towns, and that was shot down.

Is that a new tax? Tough call. I say yes, because towns need to cough it up. On the bright side, it would lead directly to a $49 million savings for the state.

The $751 million is my interpretation based on taking out all sorts of revenues that are already there, perhaps on another part of the budget.

One tax cut is listed in the budget because Lamont wanted it shown, although it’s not funded. That’s a tax credit for homeowners whose property taxes are more than 6.5 percent of their incomes. That’s Lamont’s way of displaying hope — someday, that cut, which he talked about on the campaign trail, will happen.