Connecticut governor wants to raise income taxes

[Auburn85 436]

http://www.reuters.com/article/2011/02/15/us-connecticut-taxes-idUSTRE71E5O220110215

(Reuters) - Almost all Connecticut residents would have to pay higher taxes, from sales to income to gasoline, under Democratic Governor Dannel Malloy's deficit-closing plan.

Connecticut has a deficit of about $3.5 billion, and Malloy wants to persuade the Democrat-led legislature to raise about $1.5 billion of new revenue, according to the proposal his administration unveiled on Monday.

Malloy's broad array of tax hikes, which would raise the top rate for couples with more than $1 million of income by two-tenths of a percentage point to 6.7 percent, breaks with the pronounced anti-tax stands taken by the governors of New York and New Jersey.

Connecticut competes for jobs and residents with those two more densely populated states and its tax rates, if increased, would still be two percentage points lower than New York or New Jersey.

New Jersey Republican Governor Chris Christie and New York Democratic Governor Andrew Cuomo also must close multi-billion deficits, but they oppose higher income taxes. Illinois has pleased fiscal monitors and bond investors by enacting a big income tax hike.

Malloy's progressive plan would target wealthier Connecticut residents with new income rates: 5.5 percent for couples with $100,000 of annual income, 5.75 percent for $200,000 of income, 6 percent for $400,000 and 6.25 percent for $600,000. The state's current top rate of 6.5 percent now only applies to income over $500,000 a year.

Malloy also wants to wring savings out of the unionized public workforce, seeking $1.8 billion in changes from the state's workers and another $800 million in spending cuts.

Homeowners would lose a $500-a-year property tax credit under the plan.

A new earned income tax credit would help shield lower-income individuals.

Smokers would have to pay another 40 cents in taxes, pushing the per-pack levy to $3.40, still below cigarette taxes of $4.35 a pack in New York, one of the nation's highest.

Connecticut's gasoline tax would rise by 3 cents to 28 cents a gallon; all alcohol taxes would rise too.

So would a wide variety of taxes on services and items from haircuts, yoga, plastic surgery, pet grooming, rental cars and hotel rooms. The list of tax increases also includes car washes, manicures, nonprescription drugs, and the trade-in exemption for a car.

Connecticut's wealthy would also have to pay a tax on luxury goods, and the estate tax exemption would fall to $2 million from $3.5 million.

(Reporting by Joan Gralla; Editing by Padraic Cassidy)