Governor Calls for Cuts in Income and Gasoline Taxes
In his State of the State address to open the 1998 session of the Connecticut General Assembly, Gov. John G. Rowland (R) called for further cuts in the personal income tax and the gasoline excise tax. Overall spending for fiscal 1999, which is the second year of the current biennium, would grow approximately 3.5 percent over fiscal 1998, to a total of $10.9 billion.
The proposed personal income tax cut includes both an extension of the 3 percent rate bracket and a tax rebate. First, for 1998, the 3 percent bracket would be extended from the first $15,000 of taxable income for joint filers to $18,000; from $12,000 for heads of household to $14,500; and from $7,500 for single filers to $9,000. Further increases in the 3 percent bracket would also take effect for 1999, from $20,000 to $27,000 for joint filers; $16,000 to $21,500 for heads of household; and $10,000 to $13,500 for singles. The projected cost of these cuts would be $37.5 million in 1998 and $75 million in 1998 and thereafter.
The second component of the personal income tax cut would consist of a rebate based on a portion of the projected surplus for fiscal 1998, which ends June 30. An amount of up to $125 million of the surplus would be set aside into a Taxpayer's Relief Fund to fund rebates to those personal income taxpayers who are eligible for the current property tax credit on principal residences or automobiles. A rebate of up to $200 for joint filers, $150 for heads of household and $100 for single filers is being proposed. The governor contemplates issuing rebate checks within 45 days following the certification of the surplus on September 1. The rebate is projected to cost $125 million.
The governor also proposed accelerating the effective date of the 3-cents-per-gallon cut in the gasoline excise tax from July 1, 1998, to April 1, 1998, and increasing the total cut to 4 cents. This cut would reduce the gas tax as of April 1 to 32 cents per gallon. Last year, as part of the governor's budget proposal, the General Assembly passed two 3-cents-per-gallon reductions. The first took effect on July 1, 1997.
Rowland also proposed two additional minor tax cuts. First, private water companies would be exempted from the corporation business tax retroactive to January 1, 1998, which is expected to save the water companies approximately $4 million. It is anticipated that the $4 million in savings would mean that rate reductions of 2.5 to 3 percent could be passed along to private water customers. Last session, the General Assembly eliminated the gross receipts tax on private water companies, which was estimated to save about $8 million annually. That exemption began on July 1, 1997.
Finally, Rowland is proposing to eliminate the insurance premiums tax on all state health insurance contracts. Last session, legislation was passed to eliminate the tax on state employee and retiree health insurance contacts as well as on Medicare Risk contracts.
Reprinted with permission from the February 9, 1998 issue of State Tax Notes.