Connecticut Governor Seeks Sales Tax Overhaul
- Feb 27, 2015 | Gail Cole
Connecticut does not live within its means, and this is reflected in its budget deficit. To “build a better tomorrow,” Connecticut Governor Dannel P. Malloy suggests “making smart choices.” The tax code should be simplified, with exemptions removed and loopholes closed. Corporate tax credits should be reigned in. The state sales tax rate should be reduced.
The governor’s FY 2016 – FY 2017 budget makes the following revenue proposals (in relevant part):
- Drop the sales tax rate to 6.2% on November 1, 2015.
- Drop the sales tax rate to 5.95% on April 1, 2017.
- Eliminate the sales tax exemption for clothing.
- Reduce items eligible for the sales tax free week to those costing less than $100.
Connecticut currently exempts bicycle helmets, clothing (costing less than $50), groceries, medical supplies, textbooks and vehicles. Eliminating the clothing exemption, which was adopted in 2014, should increase revenue by approximately $140 million per year.
The Tax Foundation points out that Connecticut’s “sales tax exemptions totaled an estimated $3.7 billion” in FY 2013, a period in which sales tax revenue was $4.1 billion. Working a little mathematical magic, it concludes that “if the sales were levied across all these categories, a 3.34% rate would have generated the same revenue as the 6.35% rate.”
If lawmakers approve broadening the sales tax base, reducing the rate, and "making Connecticut’s anomalously high business taxes even higher,” the Tax Foundation worries that the budget could limit the state’s economic growth rather than help it grow.
A policy brief published by the Yankee Institute also criticizes budget proposal: “The budget … makes a complicated series of adjustments to the sales tax.” Instead, the Yankee Institute proposes removing "the sales tax cuts (and compensating tax increases) from the proposed budget."
The future of the budget now lay in the hands of the Connecticut House and Senate.
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