Tuesday, January 17, 2012

Malloy Re-inventing Taxes

In the new state reinvented by Governor Dannel Malloy and his Malloyalists, sin taxes are in. And if the state is unable to reap enough taxes from current sins – boozing, gambling and driving cars to work rather than biking to the job -- Connecticut will, with the help of the federal government, create new vistas of sin and tax them to the hilt.

The tax on tobacco products in Connecticut, already the highest in the Republic, was increased in Mr. Malloy’s first budget 27.5 to 50 percent on products such as cigars and pipe tobacco. Snuff tobacco suffered a tax increase from $0.55 to $1 an ounce. Former Attorney General Richard Blumenthal rose to prominence in the state by beating the tobacco industry with a big litigation stick; recently Senator Blumenthal sought to end cigar smoking as at sporting events.

Taxes on gas in Connecticut, an energy product frown upon by the environmental industry, is the highest in the nation, largely because the state realizes a revenue bonanza on gas from two different taxes: the gas tax at 25 cents a gallon, and the gross receipt tax at another 25 cents a gallon. Republican State Senator Len Suzio is contemplating a bill that would cap the gross receipt tax at $3. But a bill adjusting downward a tax in Connecticut is a rare legislative animal, and any such measure is likely to be smothered in its crib by Democratic legislators whose platforms for reelection generally contain smoldering verbiage plighting their troth to middle class nutmeggers taxed by Mr. Malloy.

Like the mafia of old, Connecticut does not tax gambling directly; it simply demands a piece of the action. Former Governor Lowell Weicker is responsible for the contract between Connecticut and its two Indian casinos that regularly dumps a percentage of slot machine business into state coffers. Tax money realized by the state from its two Indian Casinos runs about $33 million per year, and the coming state tax on internet gambling, now referred to by the poofy euphemism “gaming,” promises to swell state coffers even more.

Thanks mostly to an interpretation of a law by a functionary in President Barrack Obama’s Justice Department, the states and the federal government will reap many more tax dollars from a new industry created by legal re-invention – internet gambling. The promise of additional tax revenue flowing from the new internet gambling industry has had a soporific effect on politicians in the state who used to inveigh against gambling, among them former Attorney General Richard Blumenthal, who went to Washington promising his constituents that he would fight for them as senator with the same passion he brought to the attorney general’s office. The senator is no longer keen on preventing internet gambling.

Shortly after he had been swept into office with a miniscule plurality of votes -- only 6,404 among 1.2 million cast during his joust with Republican candidate for governor Tom Foley, a jobs producer savagely portrayed in pro-Democratic ads as a corporate raider -- Mr. Malloy and the Malloyalites surrounding him plotted a massive tax hike, the largest in Connecticut history, not excepting former Governor Lowell Weicker’s tax raid on Connecticut citizens in 1991 following the former governor’s successful effort in adding an income tax to Connecticut’s revenue producing engines.

An adept politician, Mr. Malloy discovered a way to boil the lobster -- very slowly over a low flame -- to prevent it jumping the pot.

Mr. Malloy mollified arch progressives on the left such as Speaker of the House Chris Donovan, now running for the U.S. Congress in the 5th District, by readjusting tax brackets and rates, increasing tax brackets from three to six and boosting the top marginal income tax rate to 6.7%. A provision was added into Mr. Malloy’s budget that allowed residents who do not pay income taxes to collect from Connecticut’s treasury an Earned Income Tax Credit amounting to 30% of their Federal Earned Income Tax Credit.

In order to increase revenue substantially enough to produce fiscal surpluses, Mr. Malloy broadened the tax base, increased Sales and Use Taxes, Admissions Taxes, Corporation Business Taxes, Excise Taxes and Miscellaneous Taxes. Then he went to work reducing the offsets. The income tax credit for property taxes paid to Connecticut municipalities was reduced from $500 to $300. Mr. Malloy recently formed a commission to study other tax credits offered to businesses in Connecticut with a view to reducing them, thus adding even more revenue to state coffers.

As business production dipped both in Connecticut and the nation at large, Mr. Malloy added to the sagging shoulders of Connecticut corporations a business surtax of 20% that is to apply, provided the tax self-lapses, for income years 2012 to 2014.

Mr. Malloy boosted tax rates as shown below, according to a “Summary of Tax Provisions Contained in 2011 Conn. Pub. Acts 6,” that appears on Commissioner of Revenue Services Kevin Sullivan’s site:

“The general sales and use tax rate increases from 6% to 6.35%;

“The room occupancy tax increases from 12% to 15%;

“The tax on the rental or leasing of a passenger motor vehicle for a period of 30 consecutive calendar days or less increases from 6% to 9.35%;

“A tax rate of 7% applies to the following: the sale for more than $50,000 of most motor vehicles, the sale for more than $100,000 of a vessel, the sale for more than $5,000 of jewelry (whether real or imitation), the sale for more than $1,000 of an article of clothing or footwear intended to be worn on or about the human body, a handbag, luggage, umbrella, wallet or watch."
Mr. Malloy then taxed services that had not been taxed before he was elected:

“Services rendered in the voluntary evaluation, prevention, treatment, containment or removal of hazardous waste or other contaminants of air, water or soil;

“Valet parking provided at any airport;

“Yoga instruction provided at a yoga studio;

“Motor vehicle storage services;

“Packing and crating services;

“Motor vehicle towing and road services;

“Intrastate transportation services provided by livery services, with certain exceptions, including nonemergency medical transportation provided under the Medicaid program, certain paratransit services and dial-a-ride services;

“Pet grooming, pet boarding services, and pet obedience services;

“Services in connection with a cosmetic medical procedure;

“Manicure services, pedicure services and all other nail services; and
“Spa services.”
He imposed new admission taxes never before collected on:

“The Hartford Civic Center;

“The New Haven Coliseum;

“New Britain Beehive Stadium;

“New Britain Stadium;

“New Britain Veterans Memorial Stadium;

“Bridgeport Harbor Yard Stadium;

“Stafford Motor Speedway;

“Lime Rock Park;

“Thompson Speedway;

“Waterford Speedbowl;

“Facilities owned or managed by the Tennis Foundation of Connecticut or any successor organization;
“William A. O’Neill Convocation Center;

“Connecticut Exposition Center;

“Nature’s Art;

“Connecticut Convention Center;

“Dodd Stadium;

“Arena at Harbor Yard;

“Games of the New Britain Rock Cats, New Haven Ravens or the Waterbury Spirit."
Never one to overlook an opportunity to tax sin, Mr. Malloy increased excise taxes:

“Cigarette Tax - Rate increase: The cigarette tax rate will increase from $3.00 to $3.40 per pack on July 1, 2011.

“Tobacco Products Tax - Rate increases: Effective July 1, 2011, the tax on all tobacco products (other than tobacco snuff products) will increase from 27.5 percent to 50 percent of the wholesale sales price of such products. In the case of cigars, the tax will be 50 percent of the wholesale sales price, not to exceed 50 cents per cigar.

“Effective July 1, 2011, the tax on tobacco snuff products will increase from $0.55 per ounce to $1.00 per ounce of snuff.

“Effective July 1, 2011, the tax on cigars will be 50 percent of the wholesale sales price, not to exceed 50 cents per cigar.

“Alcoholic Beverage Tax - Rate increases: Effective July 1, 2011, the various alcoholic beverages tax rates will increase by 20%."
The seventh day not having yet arrived, Mr. Malloy was not quite finished re-inventing Connecticut. He had neglected to tap a rich vein of Miscellaneous Taxes. Perhaps his economic guru Ben Barnes rousted him from slumber with a tap on the shoulder.

“Hey boss, you forget something.

“Oh Yeah.”

“Real Estate Conveyance Tax - Rate increases: For deeds, instruments or writings that are currently subject to the state real estate conveyance tax at a rate of 0.5%, the rate is increased to 0.75% effective July 1, 2011.

“For deeds, instruments or writings that are currently subject to the state real estate conveyance tax at a rate of 1.0%, the rate is increased to 1.25% effective July 1, 2011.

“Estate Tax: For estates of decedents dying on or after January 1, 2011, an estate is subject to the Connecticut estate tax if the amount of the Connecticut taxable estate exceeds $2 million.

“Gift Tax: For Connecticut taxable gifts made by a donor during a calendar year commencing on or after January 1, 2011, including the aggregate amount of Connecticut taxable gifts made by the donor during all calendar years commencing on or after January 1, 2005, the Connecticut gift tax will be imposed if the amount of Connecticut taxable gifts exceeds $2 million (with a credit allowed against such tax for Connecticut gift tax previously paid for Connecticut taxable gifts made on or after January 1, 2005, but prior to January 1, 2011).

“New Electric Generation Tax: Effective for calendar quarters commencing July 1, 2011, there is a new electric generation tax that is imposed on every entity that is providing electric generation services and uploading electricity generated at a facility in Connecticut to the regional bulk power grid. The tax is equal to $0.0025 multiplied by the net kilowatt hours of electricity that are generated and uploaded. The tax does not apply to electricity generated and uploaded exclusively through the use of fuel cells, solar, wind, water, or biomass. Note: This tax is scheduled to sunset on July 1, 2013.

“New Hospitals Tax: Effective for calendar quarters commencing July 1, 2011, there is a new tax imposed on a hospital’s “net patient revenue.”

“New Residential Day User Fee – ICF-MR: Effective for calendar quarters commencing July 1, 2011, there is a new “residential day user fee” on each intermediate care facility for the mentally retarded in this state.

“Nursing Home User Fee: Effective for calendar quarters commencing on or after October 1, 2011, the fee is based on the sum of each nursing home’s anticipated nursing home net revenue multiplied by a percentage set by the Department of Social Services, which percentage will not exceed the maximum allowed under federal law.”
When Mr. Malloy had finished re-inventing Connecticut’s taxes, only sticks, stones and grasshoppers remained unaccosted by the tax collector. The revenue lemon, which represented approximately one half of Mr. Malloy’s “shared sacrifice,” had been squeezed dry.

The new internet gambling tax is very much like the tobacco and alcohol tax in several respects. Smoking, drinking and gambling are discreditable activities. Both Mr. Blumenthal and Mr. Malloy, one supposes, avoid all three. There are no photo opportunities showing the governor or the senator poised at a one armed bandit – so called for a good reason – encouraging a client of Foxwoods or Mohegan Sun to dump their savings into shot machines.

And yet…

Revenue from sin taxes can be turned to good use. The gambler who drops fifty bucks at Foxwoods contributes his mite to teacher pensions, busway projects and Mr. Malloy’s other re-invention activities.

While governors and senators hate the sin, they love the taxpaying sinner. Internet gambling creates a whole new industry for tax plucking purposes. Obstacles will be removed, objections will not be sustained.
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