In his address to a joint session of the Connecticut General Assembly on February 10, Gov. John Rowland (R) introduced his budget and tax packages for the fiscal 2000-01 biennium. The budget proposes spending $11.6 billion in fiscal 2000 (July 1, 1999, to June 30, 2000) and $12.1 billion in fiscal 2001. These figures represent increases in spending of 4.51 percent and 4.77 percent, respectively. The growth in spending in each of the two years of the biennium is projected to be below the spending cap limit of approximately 5 percent for each year.
The tax proposals are once again highlighted by a personal income tax rebate and an increase in the personal income tax credit for property tax payments. Rowland proposes using $70 million of the fiscal year 1998 surplus and an additional $10 million of unexpended funds from the 1998 rebate to fund an $80 million personal income tax rebate, payable in 1999. To be eligible for the rebate, a taxpayer must have filed a 1998 income tax return, claimed the current property tax credit, and had a remaining tax liability, after all credits, of at least $5. Taxpayers would receive a rebate for their remaining tax liability, up to a maximum of $150 for joint filers, $120 for heads of households and $75 for single filers.
Beginning with calendar year 2000, Rowland proposes to increase the current personal income tax credit for property tax paid from a maximum of $350 to $400. This increase is projected to result in a revenue loss to the state of $30 million in the second year of the biennium.
The governor is also proposing three personal income tax credits as incentives to state residents to pursue postsecondary education. The governor is proposing a 4 percent tax credit for parental contributions to the Connecticut Higher Education Trust Program. This Program accepts contributions from state residents, on a posttax basis, and invests those funds on a tax-deferred basis until the beneficiary commences matriculation at an institution of higher education. In addition, the governor is proposing 15 percent "piggy-back" tax credits, at the state level, on the new federal HOPE scholarship tax credit and the lifetime learning tax credit. The federal HOPE scholarship tax credit provides a credit of up to $1,500 per student for qualified expenses. Under Rowland=s program, Connecticut families could take an additional 15 percent credit on their state tax return, up to $225 per student. Similarly, Rowland would provide a 15 percent Connecticut personal income tax credit of up to $150 per filer, as a piggy-back on the federal lifetime learning credit.
The governor is supporting a number of tax initiatives proposed by the Connecticut Department of Revenue Services. These proposals include providing a 120-day safe harbor for sale-leaseback transactions and extending the sale and use tax exemption for services among wholly owned subsidiaries and affiliates to noncorporate entities such as limited liability companies and limited liability partnerships (see State Tax Notes, Feb 15, 1999, p. 449).
As part of his budget package, Rowland also listed the various tax reductions enacted in prior years that will take effect during the biennium. These include the reduction of the corporation business tax rate to 8 percent for income years commencing on and after January 1, 1999, and to its final rate of 7 percent for income years commencing on and after January 1, 2000. These reductions are expected to save corporate taxpayers $69 million and $24 million, respectively, over the biennium. The portion of the net income of S Corporations subject to the corporation business tax will be reduced to 55 percent for income years commencing on and after January 1, 1999, and will go to 30 percent for income years commencing on and after January 1, 2000. The final phaseout will come during the following income year.
As of January 1, 1999, the previously enacted expansion of the amount of income subject to the lower 3 percent rate on the personal income tax will take effect. These amounts will be increased from $15,000 to $20,000 for joint filers, from $12,000 to $16,000 for heads of households, and from $7,500 to $10,000 for single filers.
The governor's proposed budget, together with the proposed tax cuts, now will be taken up by the various committees of the General Assembly.