Talking Taxes in Connecticut

There are two Connecticuts. One is made up of port cities and working-class burgs so decimated by deindustrialization they could be mistaken for parts of the Rust Belt. The other is the one that more commonly springs to mind: the old-money land of yachts, weekend homes, luxury cars, and faux-quaint small towns.

In the battle for resources, the old money (or just plain big money) usually wins. The state didn't have an income tax at all until 1991, when one-term Gov. Lowell Weicker fulfilled a campaign promise by establishing one. But even that tax provided a loophole for wealthy denizens of the state's southwestern corner, from which many residents commute to banking and other high-paying jobs in New York City.

So, it may seem surprising that Connecticut's current governor, Dannel Malloy, has taken it upon himself to make the state's taxes more progressive. As mayor for 14 years of the suburban city of Stamford in the wealthiest corner of lower Fairfield County, home to some of the richest municipalities in the nation, he enticed big international banks to build corporate headquarters where low-income housing once stood, and replaced abandoned factories with luxury condominiums. The divide between Malloy's patch of Connecticut and the cities and towns farther upstate, where the capital, Hartford, is located, usually makes it difficult for a lower Fairfield County politician to win statewide races in the first place.

But Malloy ran on a pro-labor, pro-working-class platform and promised, ever so tepidly, to consider a more progressive tax structure as part of a plan to repair the state's budget shortfall. With the support of labor groups, especially state workers, he squeaked out a narrow victory against Republican Tom Foley, a businessman from the neighboring town of Greenwich.

Malloy fulfilled that promise quickly. On Feb. 16, a little more than a month after taking office, he unveiled a two-year budget proposal that would close a $3.2 billion budget gap. The provision that eventually passed increased taxes to the tune of $2.6 billion by doubling the number of income tax brackets and increasing the rates at almost every level. Families making over a million dollars will have to pay at a rate that maxes out at 6.7 percent, up .2 percent from the previous rate. At 6.65 percent, Connecticut has a high percentage of families who are millionaires. The top 1 percent of taxpayers contribute 37 percent of total income-tax revenue.

Malloy also introduced a luxury--goods tax that added a sales-tax surcharge to cars worth more than $50,000, yachts, yoga classes, jewelry worth more than $5,000, and clothing worth more than $1,000. This was paired with an increase in sales taxes that all families pay for retail goods and an end to a three-week "back to school" tax holiday in late summer.

In tandem with the tax hikes, though, Malloy also promised to extract $2 billion in concessions from the state-employee unions whose support had helped him become governor. Unlike his newly elected Democratic counterpart in the neighboring state of New York, Andrew Cuomo, who has spent much of his time vilifying public-sector workers and their pay and benefits, Malloy framed the concessions as part of a call for shared sacrifice. "My budget is going to ask for sacrifices from everyone in the state, whether you're wealthy, to middle class, to somebody who relied on a benefit that you may no longer get--there will be more than enough sacrifices for everybody," he said at the time. "This is not just shared sacrifice-- this is universal sacrifice."

When Malloy's budget came before the Legislature, the proposed tax increases proved to be a problem for some Democrats from the governor's corner of the state. William Tong, a state senator from a high-income north Stamford district who is positioning for a run to replace U.S. Sen. Joseph Lieberman in 2012, nearly voted against his former mayor turned governor. "This is very, very difficult but the governor has taken a strong stand. ... Everyone has to sacrifice here, and I'm going to stand with him," Tong said when he announced his vote in early May.

The Legislature passed the budget, and Malloy signed it on May 4 on the condition that he would alter it unless the unions would agree to the proposed reductions in pay and benefits. The deal granted Malloy wide latitude in what to do should the unions not agree to the concessions and gave him until the end of May to get them. To put pressure on unions, Malloy issued a Plan B budget that would cut programs such as rest stops and early childhood development and increase taxes even more. He also began rolling out provisional July 1 layoff notices to 4,500 state employees whose jobs would be lost if the unions didn't make concessions. While initially the unions balked at the $2 billion figure, the prospect of layoffs compelled them to bargain with the governor. They reached a deal May 13 that includes a two-year wage freeze and the elimination of managerial positions, and a promise of no layoffs for unionized state employees for four years. "State employees used their knowledge and experience to create a better future--for themselves, their services, and the people of Connecticut they proudly serve," said the State Employees Bargaining Agent Coalition in a statement.

With every state in the union under pressure to close budget gaps by slashing spending, public employees from New York to Wisconsin are learning that their benefits are often the most vulnerable state expenditure. What's different about Connecticut is what Malloy hasn't done and how he's packaged what he has. He hasn't attacked public workers' benefits as fundamentally bloated or unfair. He's promised not to touch priorities such as education. He's also framed the increase in state taxes in a way that garnered support: They would allow, he said, a reduction in local property taxes or at least prevent an increase. Since Connecticut towns usually have, on average, one of the top property-tax rates in the nation, this packaging probably carried the deal.

All of this means that Malloy is one of the few Democrats who is, at the moment, acting almost like a Democrat.

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