Democrats: tax on digital downloads; higher taxes on alcohol

>> Click through to see some of the changes supported by Gov. Ned Lamont (read more below)

• E-cigarette (vaping) tax >> Click through to see some of the changes supported by Gov. Ned Lamont (read more below)

• E-cigarette (vaping) tax Photo: Craig Mitchelldyer / Associated Press Photo: Craig Mitchelldyer / Associated Press Image 1 of / 15 Caption Close Democrats: tax on digital downloads; higher taxes on alcohol 1 / 15 Back to Gallery

Consumers would pay 6.35 percent on digital downloads and drinkers would see 10 percent higher prices on alcohol under a Democratic package of tax increases of more than $1.3 billion that accept some of Gov. Ned Lamont’s ideas for broadening the tax base and reject others.

Both paper and plastic bags available at most retailers would cost consumers 10 cents, if the budget becomes law.

The tax-writing legislative Finance Committee, in a partisan vote late Wednesday afternoon, approved the elimination of Connecticut’s gift tax and the $250 business entity tax. It would use $50 million from the state’s $2 billion surplus for each of the two years of the budget starting July 1.

Sen. John Fonfara, D-Hartford, the veteran chairman of the committee, said in a statement that previous budgets that used $600 million in one-time revenue sources, made this year’s budget more challenging to craft. He defended this proposal, which is expected to pass the committee and become part of the negotiations with Lamont over the next few weeks. “That’s a reflection on how tough it is to get everyone to agree on a package,” he told the committee.

“The money that’s being raised here is going to work hand-in-glove with the budget in the Appropriations Committee,” said Rep. Chris Perone, D-Norwalk, a member of both panels. “This is a challenging situation, so the revenue we raise here is being spent wisely and prudently. But we have a long way to go.”

The committee agenda included taxes on electronic cigarettes. Services including interior design, parking, ride sharing, dry cleaning and safety clothing including hard hats, would be subject to the 6.35 percent sales tax. Lamont had proposed new sales taxes on non-prescription drugs, veterinarians, haircuts, as well as legal and accounting services, all of which escaped the legislation.

The package includes a 2 percent tax on capital gains that would affect about 14,000 high earners in the second year of the biennium.

“We rejected a lot of proposals that were made,” said Rep. Jason Rojas, D-East Hartford, co-chairman of the committee, under questioning on the new taxes by Rep. Chris Davis, R-Ellington, ranking member of the committee, who was concerned about the effect of the new taxes on small businesses. “I don’t think the process will put a business owner into a deficit situation,” Fonfara said.

Davis asked whether the tax package is aligned with the spending legislation approved on Tuesday by the Appropriations Committee. Democrats said it is. “It’s only May 1, so nothing is off the table,” Rojas replied.

“From what I gather here we’re talking about significant tax increase,” Davis said, warning that those with the means to leave the state, may move. “Billions of dollars of Connecticut’s taxable wealth has moved out of the state. By putting something like this in place, I fear we might be doing more harm than its worth.”

Tax package highlights $85 million in tax cuts. About $936 million in new taxes in the first year and $1.28 billion in the second year. A new 50 percent excise tax on the wholesale price of all E-cigarette and vapor-inhaling products. Limits the $200 property tax credit to seniors and those with dependents. Breweries would get a 50 percent break on sales for off-site consumption. Increase the amount of money being diverted into the Special Transportation Fund by $305 million over three years. Daily, computerized collection of the sales tax to expedite collection. Sales taxes on the private sale of used cars. Long-term borrowing of $1.7 billion in the first year and $1.6 billion in the second.

He said this tax package could discourage entrepreneurs.

“If you want to relax and watch Netflix, you’re going to pay more if you’re living in the state of Connecticut. It’s spending more, it’s taxing more, it’s borrowing more. We’re way behind the rest of the country in job growth.”

Rojas said that some of Lamont’s proposals were unacceptable, so other areas had to be looked at. “We continue to look at the rest of the package,” Rojas said. “I don’t know that anybody here is particularly happy to make these changes. These are certainly difficult decisions.”

Rep. Vincent Candelora, R-North Branford, warned that the budget could bring the state back to massive amounts of revenue loss, similar to the income tax shortfalls of the post-Great Recession era of about 10 years ago. He warned that the expansion of the sales tax base could hurt businesses of all kinds. “I don’t either approach is right, either the governor’s or this package,” he said. “This is just not the way to start the dialogue.”

A 10 cent tax on paper and plastic bags at most retail outlets is part of the bill, as well as a new 1 percent additional local meals tax to go back to cities and towns. The chemicals that make up e-cigarettes would be subject to a 50 percent excise tax on wholesale charges.

Currently, digital downloads are taxed at 1 percent and restaurant meals at 6.35 percent.

In the associated bond package, approved early Thursday morning in a bipartisan vote, the committee rejected Lamont’s proposed sharp cutback on long-term borrowing, called the “debt diet.”

Lamont, in a statement prior to the committee’s late-afternoon meeting, said he understands that the legislation spending and tax packages are the basis of final budget negotiations heading toward the June 5 legislative adjournment.

“Our debt diet was reviewed favorably by the ratings agencies and resulted in an outlook upgrade,” Lamont said. “What the markets — and businesses — are telling us is clear: Cut back on the borrowing while maintaining our state’s infrastructure, get the state on firmer fiscal footing, focus on a reliable, sustainable solution for transportation investment, and get the state growing again.”

While Lamont wanted to cut $600 million in annual bonding, the committee approved $1.7 billion in the first year and $1.6 billion in the second year of the budget.

“We totally embraced the debt diet, but we did not want to cause starvation,” said Rep. Livvy Floren, R-Greenwich, a leader of the bonding subcommittee.

Senate Minority Leader Len Fasano, R-North Haven, said that the Democrats’ budget will touch everyone in the state.

“This budget contains much more than a tax on the wealthy,” Fasano said. “This includes higher taxes on everyone. It moves our state in the opposite direction of the progress we have made over the last two years in our bipartisan budgets. The proposal we have before us today is exactly what Democrats tried to pass two years ago.”

Fasano said he believes the legislative Democrats are attempting to “bully” the first-term governor. “Yet again we are seeing the governor get pushed around by members of his own party. Is he going to take a stand on anything, or is he going to continue operating in fear of Democrat legislators?”

The liquor industry cried foul over the new alcohol levy.

“The proposal is a massive tax increase on consumers that received no oversight or chance for public comment,” said Distilled Spirits Council Vice President Jay Hibbard. “This backroom deal violates every tenet of good governance and will incentivize consumers to purchase alcohol in neighboring states. By driving consumers across state lines, state revenue will be hurt through lost sales. This is a bad deal for consumers, and ultimately, state coffers.”