Connecticut Lawmakers Wrangle Over Income Tax

CONNECTICUT is one of 11 states that have no personal income taxes. The Legislature passed such a tax in 1971, but it was quickly yanked after strong citizen protest. The state never bothered to ratify the 16th Amendment to the United States Constitution, which in 1913 authorized the federal income tax.

And former Gov. William O'Neill (D) kept a vow to never sign an income-tax law during his 10 years in office in the 1980s.

With some of the highest sales and corporate taxes in the nation, Connecticut lawmakers are obviously reluctant to enact an income tax in the midst of a recession.

But that's just what the state - with a $2.7 billion deficit - has had to grapple with since February, when the strong-willed new governor, Lowell Weicker, sent an income-tax package to the Legislature.

This week state legislators rejected the governor's plan and immediately went into special session to try to solve the state's financial crisis.

Actually, a half-dozen tax proposals have been floating around the freshly renovated Connecticut Capitol.

Governor Weicker's plan included a flat 6 percent income tax, halved the sales tax, cut taxes on businesses, capital gains, and dividends, and reduced state spending by $1.2 billion. Another proposal, not yet acted upon, does much the same thing but includes a progressive income tax and provides property-tax relief.

Lawmakers went against the governor's wishes and passed a no-income-tax plan - by 77 to 71 in the House and 22 to 14 in the Senate. The bill extended the sales tax to more items and placed a new tax on home mortgages and home equity loans.

The tax plan was tied to a bipartisan $7.7 billion budget.

Weicker, who had vowed to veto any tax plan that didn't include an income tax, vetoed the legislators' bill.

The once-united front against an income tax has been splintering, say state legislators. Speaker of the House Richard Balducci, who opposed an income tax for 17 years, changed his mind. Senate majority leader Cornelius O'Leary last week came out in favor of an income tax-based package - then proffered his own, which has not been acted upon.

Connecticut's large and influential insurance industry, the Connecticut Business and Industry Association, labor, real estate groups, and women's groups have all come out in support of an income tax.

"The conventional wisdom - that voters will not tolerate an income tax - we feel is no longer true," says state Rep. Miles Rapoport (D) of West Hartford, a sponsor of a tax bill that includes a progressive income tax.

While Massachusetts has received much attention for its spectacular fall from the "Massachusetts miracle," Connecticut's economy is in worse shape. It is one-third the size of Massachusetts and its deficit is higher. Four years ago the state had a $400 million surplus.

The fiscal crisis has caused some soul-searching over not just what kind of tax to levy, but how to make the tax structure fairer in a state that has extremes of income levels. Some of the wealthiest individuals in the US reside in southern Fairfield County; at the same time, cities like New Haven and Bridgeport in the north are among the nation's 10 poorest.

All three of the main tax proposals exempt families with incomes under $25,000. Senator O'Leary's exempts those with incomes under $75,000. An income tax is fairer than a sales tax, which hits those with lower incomes harder than the more affluent, say proponents.

"There is substantial momentum for tax reform," says Representative Rapoport.

"People in business feel that individuals should be pulling more of their share of the load, not have it all rest on business," says Frank Von Holzenhausen, a partner in a local design firm.

Wednesday evening the Senate rejected Governor Weicker's tax plan, 28 to 8. The legislative session by law ended Wednesday, but the lawmakers called themselves back for a special session. They are aiming to have a new budget-tax package completed by June 21, says Senate President John Larsen (D) of East Hartford.

The governor's veto of the tax package that Democrats and Republicans worked on may return to haunt him. Weicker, a longtime Republican US senator, ran for governor as an independent and garnered 40 percent of the vote.

House minority leader Edward Crawieki Jr. (R) of Bristol says the fact that Weicker began his reign without a special constituency has "created a historic opportunity for both sides to work together."

Senator Larsen, a longtime income tax opponent, says: m unconvinced the income tax is the panacea to get us through our fiscal woes. The real issue is one of spending reform and more conventional ways of raising taxes through sales and use fees."

"A lot of people support an income tax, but they can't agree on which one," says Senate President Larsen. Representative Crawieki says the alternative budget contains a deficit-reduction plan and "the most comprehensive spending-containment program in the nation."