With Connecticut government finances on pace for another massive surplus, Senate Republicans called Tuesday for a temporary rollback of state sales tax rates.
The GOP minority proposed dropping the general rate from 6.35% to 5.99% and suspending the 1-percentage-point surcharge Connecticut has levied on restaurant food and other prepared meals since 2019.
Both changes would be effective on Feb. 15 and last through December. But Senate Minority Leader Kevin Kelly, R-Stratford, said his caucus would support long-term tax relief if revenue projections surge again later this year.
“The family budgets are getting crushed,” Kelly said. “What we’re hearing from families across Connecticut is that they need help, they need relief, that the economy for Connecticut is not performing for them.”
The coronavirus pandemic and escalating inflation are eating away at a state that already lags the nation in employment and income growth, he said.
Chipping roughly 1/20th off of the general sales tax rate and suspending the restaurant surcharge for most of 2022 would save taxpayers roughly $315 million, according to caucus projections. It would cost the state about $132 million between February and this fiscal year’s close on June 30 and another $183 million between July and December.
The sales tax is projected to generate more than $4.4 billion this fiscal year, second only to the state income tax, which is expected to yield nearly $10.4 billion.
Connecticut’s 6.35% base sales tax rate ranks 12th-highest among all states and the District of Columbia, according to The Tax Foundation, a Washington, D.C.-based fiscal think-tank.
But many other states levy sales taxes at the local level as well, while Connecticut does not. Based on the combined state and local burden, Connecticut ranks among the states with lower tax burdens — 33rd nationally.
Under the Republican proposal, Connecticut would rank 25th in state rates and 41st in the combined state and local tax burdens — among the lowest rates in the country.
Sales tax relief would be more modest than an income tax cut but could be delivered right now, rather than next spring — or next year, Kelly said.
The Senate Republican plan also would allow Connecticut to continue shrinking the massive pension debt that has put tremendous pressure on taxpayers for years, he said.
Connecticut has nearly $41 billion in unfunded pension obligations stemming from more than seven decades of inadequate savings.
The General Assembly launched a bipartisan initiative to attack that problem in 2017, forcing the state to save a significant portion of state income tax receipts from capital gains and other investment earnings.
That initiative, coupled with a robust stock market, has led to a record-setting $3.1 billion emergency budget reserve and nearly $1.7 billion in supplemental payments into the pension funds — on top of the billions of dollars in required payments the state makes annually.
Comptroller Natalie Braswell projects the state will close the fiscal year in June with nearly $1.9 billion left over. Even if $315 million in sales tax relief is granted, Kelly noted, the state still would be poised for another round of massive debt reduction.
The GOP’s tax-cutting proposal is the second plan to be released in a week — but the first one that involves the state forfeiting its own tax receipts.
Gov. Ned Lamont announced last week he would redirect — via executive order — $75 million in expiring federal COVID-19 relief into one-time state income tax refunds for Connecticut’s working poor in late February.
This would provide, on average, about $377 for each of nearly 200,000 working households that earn less than $56,844 per year.
The Democratic governor also has said, though, that he is open to discussing proposals to cut state taxes when the 2022 General Assembly convenes in early February.
And with Lamont and the legislature facing a state election cycle in 2022, more tax-cutting proposals are expected in the coming months.
But Kelly said he’s optimistic that his caucus’ plan could draw strong, bipartisan support. Besides allowing Connecticut to shrink pension debt, a sales tax cut could provide an immediate benefit to nearly all residents.
“I think it’s broad-based, and I think it’s something that can be done very easily and quickly,” he said. “The state needs to return some of that [budget] windfall to the people. This is a K-shaped recovery, and the people at the lower end aren’t doing as well as the people at the top end.”
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