For two months, Connecticut Democrats have criticized Gov. M. Jodi Rell’s biennial budget proposal. Thursday, she fought back.
“The Democrats’ budget almost defies description,” she said, referring to the proposal General Assembly Democrats released Thursday. “There are phantom budget cuts and astonishing tax increases. And they are borrowing — yes, borrowing — to close this year’s budget deficit. It’s as if they have just given up.”
The Democrats’ proposed budget for the next two fiscal years included increased taxes on corporations and those making $250,000 or more. But beyond the partisan difference of whether to raise or lower taxes, and the severity of the measures being required to close the budget deficit are being contested. While Rell’s February proposal did not raise taxes or provide for borrowing, Rell drew criticism for seemingly under-reporting the size of the deficit by as much as $2.8 billion.
Rell’s Office of Policy and Management first pegged the deficit at $6 billion only to revise it to $7.4 billion last week. The Democrat-controlled General Assembly’s Office of Fiscal Analysis, on the other hand, has estimated the gap to be about $8.8 billion.
“We have come up with an honest and comprehensive budget,” Senate Majority Leader Martin Looney of New Haven said. “We are offering a more progressive income tax for those with income over $250,000, while restoring some funding for education and health care that in some cases cuts would jeopardize our receipt of federal stimulus funds.”
Rell’s plan would consolidate or eliminate several agencies and commissions, something the version put forward by the Democrats does not.
All in all, the different proposals demonstrate two different philosophical approaches to the state budgets, said Adam Liegeot ’94, a spokesman for Rell.
“The difference boils down to: Gov. Rell wants to cut spending and the Democrats want to raise taxes,” he said.
But while tax cuts are the defining issue separating the two proposals, there is a shared commitment on both sides of the aisle to cut spending. The Democrats’ proposal cuts nearly the same amount as Rell’s plan — nearly $6 billion worth — and adds approximately $3 billion in tax revenue, an increase that compensates for their higher deficit projection.
The tax plan would raise the state income tax rate by as much as 60 percent for those making over $1 million annually. It also makes the sale of several items, including college textbooks and car washes, taxable. Additionally, the budget plan places a three-year surcharge on corporate earnings.
Nicholas Perna, a lecturer in economics at Yale and an economic adviser to Rell, said the corporate profits tax surcharge of 30 percent would do far more harm than finding additional spending cuts.
“In this economic environment we can’t afford to make it unattractive for businesses to move to or remain in the state,” he said. “I know it is difficult, but you can’t tell me there isn’t a way to make more specific spending cuts.”
But Better Choices for Connecticut, a coalition made up of various progressive community groups, released a statement Thursday praising the increased tax rate in the highest brackets as “addressing a fundamentally unfair aspect of Connecticut’s tax structure.”
Unlike Rell’s plan, the Democrats’ proposal includes the issuance of $500 million in new bonds for the state’s general operating fund, a move some fear would lower the state’s bond rating. Connecticut is already one of the most heavily debt-laden states in the nation.
“It isn’t so much the amount,” Perna said, “it is how this will be received by the bond rating agencies. If you are borrowing to build infrastructure, that is a generally acceptable use of bond money. But if you are going to use bonds to cover an operating deficit, I don’t think that is ever looked upon kindly.”
Negotiations between Rell and the Democratic leadership may begin as soon as today to iron out differences in their plans. The General Assembly hopes to have a completed budget ready for Rell’s signature by June 3, its tentative adjournment date.