Budget, Legislative Session “Setting Course for Reconstruction of Connecticut” |
The Connecticut General Assembly approved a two-year, $ 46.4 billion state budget with strong bipartisan support on the last day of the 2021 legislative session.
The budget, which includes no blanket tax increases, was passed by State House 116-31 and Senate 31-4, with many Republican lawmakers joining Democratic majorities in backing it.
State spending will increase by 2.6% in FY2022 and 3.9% the following year on the basis of the budget, which makes major investments in municipal aid, education, nonprofit providers and workforce development.
Lawmakers left the state’s record $ 3.5 billion rainy day fund intact, mobilizing $ 1.75 billion in federal COVID-19 relief funds while depositing the year’s excess dollars ongoing in the underfunded state employee pension system.
CBIA President and CEO Chris DiPentima praised Governor Ned Lamont and lawmakers on both sides of the aisle who resisted proposals for more than $ 1 billion in tax hikes.
“We will end this year with a surplus of $ 500 million, a record rainy day fund and billions of dollars in federal relief,” he said. “We are grateful that so many policymakers have recognized this and resisted proposals that would undermine our economic recovery.
“From a state budget without widespread tax increases to large targeted investments in our cities, workforce development and child care, through historic unemployment reforms, this session opens the way to the recovery of the state.
“Overall, there are many reasons to be optimistic about the state’s future based on the actions that the Lamont legislature and administration have taken over the past five months and more and the wide array of favorable economic news that turns its back on us. “
DiPentima said the session addressed most of the organization’s political priorities for Reconstruction of Connecticut, designed as a roadmap for job creation and economic growth, and he thanked the bipartisan group of 55 lawmakers for State who signed the political pledge for following up on their support.
“We called for a change of mindset before the start of the session, for real collaboration and bipartisanship, so that we can capitalize on the many strengths of the state and not only restore our economy, but make it more robust than never, ”he said.
“We are grateful for the level of bipartisanship in the legislature this year, for the willingness to collaborate with business and other groups, and for the willingness of key legislative voices to speak out on economic and critical tax. “
DiPentima acknowledged that employers were disappointed with lawmakers who chose to maintain the temporary 10% corporate tax surtax, delay the repeal of the capital tax, keep the sales tax on personal protective equipment and training, and not to restore the tax credit for intermediary entities.
“We cannot lose sight of what is important. We need to continue the fiscal discipline of recent years which has seen revenue growth, a healthy rainy day fund and the recognition of Wall Street through improving the state’s credit rating, ”a- he declared.
“We must continue to fuel economic growth through policies that promote businesses and the opportunities they create for our communities and all of our residents, as the pandemic underscored.
“And let’s make sure we continue to attract residents and businesses to the state, taking full advantage of the competitive advantages New York and Massachusetts offer us through their tax policies.”
- No “consumption” tax. This proposed tax hike was in fact not tied to any consumption and, in effect, was only a surtax on personal income tax. It would have generated between 500 and 800 million dollars per year in new income.
- No tax on digital advertising. Aimed at media advertising platforms, this tax would have generated around 150 to 175 million dollars per year, which would have been fully passed on to the many companies advertising online.
- No increase in capital gains tax. The Finance Committee proposed a 2% surtax on capital gains that would translate into additional income of $ 262 million per year. The governor has been unwavering against this proposal from the day of the opening of the session.
- The R&D tax credit has been restored to 70%. This will be done in two stages starting in fiscal year 2022. It should be noted, however, that the carry forward of new R&D tax credits will be limited to 15 years.
- The corporate surtax will remain temporary and will run until 2022. Although this “temporary” tax may never go away, pushing back the expiration date, rather than making it permanent as originally proposed, prevents it from being added to the liabilities of various deposits made. by listed companies.
- The phasing out of the capital tax will be postponed until 2024. The capital tax was to begin to disappear this year. However, pushing the expiry date back a few years generates roughly $ 90 million for the state over a three-year period.
- No tax / revenue from the Transport Climate Initiative. The multi-state deal would generate around $ 100 million in revenue from fuel wholesalers, which would ultimately flow to consumers at the gas pump.
- No health insurance report. The HIT tax was to be collected from our state’s health insurers for the purpose of providing additional health insurance subsidies to certain segments of our state’s population. The problem, however, is that the valuation would ultimately be passed on to smaller businesses in the form of higher premiums.
- No payroll tax. The $ 50 million per year that would have been generated for the state through maintaining part of a voluntary reduction in employee income that would have been offset by tax credits was not worth the red tape it would have. engendered for business.
- No road use tax — a tax of $ 90 million per year on large tractor-trailers was not included in the budget. However, the legislator approved it as a stand-alone measure.
Other things to note:
- There will be a tax amnesty period running from November 1, 2021 to January 31, 2022 which will remove late payment penalties and reduce interest by 75%
- New convenience fees will be imposed on payments made to the government by credit card.
Unemployment Fund, Workforce Development
The budget also allocates $ 155 million to help resolve the state’s unemployment fund debt crisis. Employers are responsible for repaying the expected $ 1 billion federal loans the state has taken out to cover historic unemployment claims.
The CBIA has led small business efforts calling on the state to leverage federal COVID-19 relief funds to ease the burden on employers, with that debt threatening Connecticut’s post-pandemic economic recovery.
The budget includes key workforce development initiatives:
- $ 250,000 per year for the Office of Workforce Strategy
- $ 300,000 for the Office of Public Health and Pandemic Preparedness
- $ 171 million to separate Connecticut’s career and technical education system from state Department of Education
- $ 8.8 million for child care subsidies using federal funds
- $ 14 million in FY2022 and $ 15 million in FY2023 for a debt-free community college
- About $ 105 million per year to nonprofit providers
- An increase of more than $ 120 million annually in municipal funding
- $ 140 million in education cost-sharing grants to local school districts
The legislative session also included a number of other changes to tax law and policy of importance to the business community.
A further key change was adopted at the start of the session regarding the taxation of employees who previously commuted, but now telework, to an out-of-state workplace.
HB 6516 prohibits the state tax services department from establishing a link, and thus attempting to tax the income in the 2020 tax year, of any Connecticut resident who has started telecommuting to a out-of-state employment due to the pandemic.
Under the “employer convenience” rule, employees typically pay taxes in the state where their employer is located and then receive a corresponding credit for any Connecticut tax liability.
HB 6516 allowed employers who no longer commuted between states to continue to receive this credit.
Since the bill only applied to the 2020 tax year, employees who continue to telecommute rather than cross the border will be subject to Connecticut tax during the year. to come up.
For more information on state tax policy, contact the CBIA Eric Gjede (860.480.1784) | @egjede.
For more information on government spending, contact Ashley Zane of the CBIA (860.244.1169) | @ AshleyZane9.