Cut In Connecticut Sales Tax Probably Won't Happen Because Of Growing Budget Deficit

Christopher Keating

Nov. 3, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- A larger-than-expected state budget deficit could jeopardize the planned Jan. 1 sales tax cut from 6 percent to 5.5 percent.

If the trend continues, the sales-tax cut will not occur because the projected deficit is more than 1 percent higher than the estimates that were approved by the state legislature when the budget was adopted.

The latest estimates Monday by Comptroller Nancy Wyman show that the state budget could be $624 million in deficit for the current fiscal year, which would eliminate the sales-tax cut that had been one of the few bright spots in this year's budget.

The Democratic-controlled legislature approved a contingency tax cut that could be rescinded if the state's economy did not rebound. Republican Gov. M. Jodi Rell, who allowed the budget to become law without signing it, had opposed the contingency tax cut, saying that consumers needed the tax relief without any caveats.

"I wish I had better news about the revenues and the implications for a sales tax cut," Wyman said, "but my projection is based on actual tax collections and underlying economic trends that cannot be ignored."

Wyman projects that the state deficit for the current fiscal year will be $624 million -- a total that is higher than originally estimated by other agencies. Overall, state tax collections are now off by $407.6 million. Wyman's projection is $235 million worse than one made by Rell's budget office.

"Although I see a slight improvement in revenues occurring toward the end of the fiscal year," Wyman said, "my projection takes into account the accelerating job losses, high unemployment, and decline in personal income that Connecticut residents are seeing now and can expect to see in the near future."

With higher than expected unemployment and a weaker than expected economy, many economists believe that cash-strapped consumers will buy less this Christmas season. With fewer sales over the next two months, the state would generate less sales tax, which is already down from the original projections.

Republican legislators had predicted that the sales tax cut would never happen. A moderate Democrat, Rep. Stephen Dargan of West Haven, agreed Monday.

"That [tax cut] ain't happening," Dargan said. "You heard it here on Nov. 2. Everybody says we're out of the recession, but unemployment goes up."

One of the biggest problems, Wyman noted, is that the all-important estimated quarterly payments of the state income tax were off by 29 percent in September. These are the payments made generally by the state's wealthiest residents, who rely disproportionately on capital gains and dividends from Wall Street for a large percentage of their income.

Rell responded by pledging to outline budget reductions -- as soon as this week -- that she is allowed to make in various departments without legislative approval. Rell's authority, however, is limited, and any major cuts must be approved by the General Assembly.

Republican legislators called for a special session to cut spending, but Democrats responded that the numbers need to be studied further before action is taken.

Senate Majority Leader Martin Looney, a New Haven Democrat, said: "Connecticut is getting hit with a powerful one-two punch right now. Not only do revenues continue to drop, but the governor is failing to make the spending cuts called for in the budget. As the comptroller states, about one-third of the deficit is due to increased spending in the executive branch."

While Democrats placed the onus on Rell, the Republicans put it back on the Democrats.

"We should be in special session immediately -- right now," said Senate Republican leader John McKinney of Southport. "Unlike a year ago, we have no rainy day fund, and there's no federal stimulus coming in our Christmas stockings. This is their budget. This is a Democrat budget."

Newstex ID: KRTB-0083-39404206