Malloy to propose cut in sales taxes Governor would reduce tax below 6 percent for first time in 40 years

Governor Dannel P. Malloy Governor Dannel P. Malloy Photo: Cathy Zuraw Buy photo Photo: Cathy Zuraw Image 1 of / 1 Caption Close Malloy to propose cut in sales taxes 1 / 1 Back to Gallery

The state's 6.35-percent sales tax would fall below 6 percent for the first time in 40 years under Gov. Dannel P. Malloy's upcoming budget proposal, Hearst Connecticut Media has learned.

But consumers would have to give up a scheduled phase-out of taxes on clothing purchases under $50.

The tax-reform plan, which is expected to be included in the two-year, nearly $40-billion budget that Malloy will present to the General Assembly on Wednesday, would be in two steps, according to sources familiar with the issue.

If approved by state lawmakers, the sales tax would fall to 6.2 percent on Nov. 1, then to 5.95 percent on April 1, 2017.

Sales taxes on everything from new cars to restaurant meals and household goods are regressive, tax experts say, hitting lower and middle-income families much harder than the wealthy. Reducing the sales tax is in line with the progressive policies Malloy has championed, such as increasing the minimum wage and mandating paid sick leave.

"He believes in standing with, supporting and expanding the middle class, however possible," Devon Puglia, Malloy's spokesman said. The governor is trying to deliver "smart choices" for a better economy, he said.

Puglia declined to comment directly on the tax-reform plan.

Sales and use taxes are projected to bring in $4.2 billion this year.

The tax reduction would save consumers $70 million in the fiscal year that starts July 1 and $155 million the year after.

In following years they would save up to $323 million by 2020, according to projections.

The tax was increased from 6 percent in 2011 when, faced with a record deficit, Malloy and the Democratic majority in the General Assembly raised income and sales taxes and won concessions from state employee unions.

The proposed tax reduction would be partially paid for by the continued elimination of a tax exemption on clothing purchases under $50. The clothing tax break tends to come and go. Lawmakers approve it during years of budget surpluses and eliminate it during periods of deficit. It is scheduled to go back into effect on July 1.

Keeping the clothing taxes in place would, under Malloy's proposal, increase state revenue by $138 million in the first year of the biennium and $142 million in the fiscal year that starts July 1, 2016, according to an analysis.

Malloy plans a sales-tax-free week in August for clothing purchases worth less than $100 that would result in a loss of about $1 million in tax revenue.

Overall, the sales tax reforms would result in a state revenue increase of $69 million in the first year of the budget and a reduction of $12 million in the second year.

Tracy Gordon, senior fellow at the Washington-based Urban Institute-Brookings Institution Tax Policy Center said that sales taxes are generally a reliable source of state revenue, but they hit harder those who make less and devote a higher percentage of their budgets to paying the taxes.

"Sales taxes are a disadvantage to those at the lower end," Gordon said. She said that studies find that consumers don't like tax-free weeks because they force them to make purchases for which they might not be ready to make.

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