Fiscal panel report renews call for legislature to tackle tax reform

By Brian Hallenbeck 

Hartford — Formed by the state legislature in 2017 and officially disbanded earlier this year, the Commission on Fiscal Stability and Economic Growth — now a collection of private citizens — resurfaced Wednesday, releasing an updated version of its plan for restoring Connecticut’s “competitive edge.”

Like the initial report, “Report 2.0” focuses on stabilizing state government spending, stimulating economic growth and creating jobs.

Will Democratic Gov.-elect Ned Lamont and the legislature’s Democratic-led chambers take heed?

“This time, I think the timing is good,” Robert Patricelli, the retired health care executive who co-chaired the commission, said during a news briefing at the Legislative Office Building. “We’ve got a new governor, a new legislature and a full (legislative) session coming up.”

Patricelli, who was joined by former Webster Bank CEO Jim Smith, the other co-chairman, said they met earlier in the day with legislative leaders, including House Speaker Joe Aresimowicz, D-Berlin; House Minority Leader Themis Klarides, R-Derby; and Senate Republican leader Len Fasano of North Haven. Patricelli said the talks were confidential.

"We have not been swayed by the political calculus," Smith said. 

The shortness of the last legislative session and the then-impending elections were blamed for the commission’s first report failing to gain much traction after its March release. The report proposed a massive cut in the state’s personal income tax and a repeal of the gift and estate taxes, rollbacks that were to be offset by a hike in the sales tax and a new business payroll tax.

The new report — more targeted than the first — again advocates turning to consultants for help in reducing the state budget deficit by at least $1 billion. It calls for “pausing” increases in state employees’ wages and benefits while “facing up” to unfunded retiree liabilities. While the first report proposed that lawmakers negotiate agreements with state employees, the new approach calls for the governor-elect to reopen collective bargaining with public employee unions.

Connecticut's fixed costs continue to grow, the commission co-chairmen warned, with interest on debts, Medicaid and public employee retirement benefits projected to consume 53 percent of the state budget by fiscal 2020. In the last 10 years, Connecticut’s economy has shrunk by 9.1 percent while the economies of surrounding states have grown by more than 10 percent, according to the report.

“People don’t understand the depth of the problem,” Patricelli said.

Reforming the state’s tax system would involve a small reduction in overall business taxes, a cut in the top personal income tax rate from 6.99 to 6.7 percent, a doubling of property and car tax credits for low-income residents, and eventual repeal of the gift and estate taxes.

The $700 million to $800 million cost of the changes would be offset by a broadening of the sales tax base, potentially eliminating exemptions for such things as internet sales; dentistry; legal services; nonprescription drugs; renovations of residential property; veterinary care; parking; dry cleaning and newspapers and magazines. Groceries would be taxed at 2 percent.

An additional 2 percent tax on restaurant meals — on top of the current sales tax — would generate about $140 million, the report says.

The commission also would fund transportation improvements through public-private partnerships and project-specific highway tolling aimed at reducing traffic congestion. It calls for funding 4,000 STEM (science, technology, engineering and mathematics) scholarships at four-year colleges and proposes redistributing municipal aid to benefit the towns and cities that are most in need.

Almost in passing, the commission urges the legislature to consider raising the minimum wage over time to $15 an hour.