House Approves New State Budget, $1.4 Billion Tax Increase

Issues & Policies

The state House of Representatives late last night approved the new, two-year budget package proposed by Democratic leadership and passed by the Senate much earlier in the day. The House vote was 83-67, with 15 Democrats joining all of the Republicans in the chamber in voting against the budget.

When the Senate approved the budget by a 19-17 vote, three Democrats joined Republicans in voting against the bill, which will increase taxes by at least $1.4 billion.

Bill Analysis  |  Fiscal Note

The budget now goes to Governor Malloy for his signature. Connecticut's fiscal year begins July 1.

Lawmakers approved the budget without knowing what state employee concessions will take place to fill a $2 billion hole in the plan. What is certain is that taxes of many kinds will increase by at least $1.411 billion—and up to $1.9 billion, including the proposed hospital provider tax.

Tax impact

Many of the tax changes, specifically the increase in the personal income tax, will impact businesses. In Connecticut, small businesses that are formed as S corporations, limited liability companies or other similar structures pay tax on their business income under the personal income tax, not the corporate income tax. 

Under the new proposal, the state’s income tax would have a new top rate of 6.7% that would begin at lower income thresholds ($500,000 for joint filers).

Significantly, for taxpayers with incomes exceeding $700,000 for joint filers, lower marginal rates will not apply and taxpayers will pay the higher rate from dollar one. What’s more, the current top rate of 6.5% will trigger at $400,000.  

More tax changes

Among the many other changes in the budget, it will:

  • Increase the corporate income tax surcharge from 10% to 20% for income years 2012 and 2013 (the “throwback rule” was rejected)
  • Increase the sales tax to 6.35%, applicable to all taxable sales
  • Reduce the residential property tax credit off the personal income tax from $500 to $300
  • Impose a $72 million tax on electric generators (sunsetted after two years)
  • Introduce an Amazon sales tax on online purchases shipped to Connecticut residents if the Internet sellers have marketing affiliates located within the state
  • Create a 7% luxury tax, starting with the first dollar (on clothing costing more than $1,000, jewelry above $5,000, cars above $50,000 and boats above $100,000)
  • Reduce the estate tax exemption from $3.5 million to $2 million  
  • Change the cap on the insurance premium tax credit from 70% to 30%

In final negotiations, lawmakers also rejected the proposed three-cent gasoline tax increase.

Spending changes 

In February, Gov. Malloy proposed cutting state spending by about $750 million through agency consolidations and other efficiencies, such as by making inroads to change the state’s long-term healthcare and corrections systems.

The new budget bill contains about $250 million more in spending than what the governor had proposed, much of it to obtain additional federal Medicaid reimbursement, but offsets the increase with other reductions. Overall, lawmakers trimmed some state employee positions and expenses but added back some programs the governor had slated for cutting.

If the state employee union concessions cannot be reached, the budget authorizes Office of Policy and Management Secretary Ben Barnes to cut $2 billion over two years from the budget, subject to legislative approval.

Revenues up

Meanwhile, the state comptroller says that state revenues have increased by $414.9 million since last month – raising expectations for a state fiscal year-end balance of $509.6 million.

With the tax increases, the new budget is projected to produce a nearly $1 billion cumulative surplus over the next two fiscal years. 

Economy check

Serving as a backdrop to the budget is Connecticut’s struggling economy. The state’s unemployment rate climbed back over 9% in March and above the national average of 8.8%, with the state's labor markets reporting a loss of 6,000 jobs.   

The impact of the recession continues to be felt sharply by Connecticut employers, who are already facing at least $70 million in new unemployment compensation taxes and possibly more.  

For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or


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