Raising CT Sales Tax: Debate Looms

As a means of closing Connecticut's burgeoning deficit, the State Legislature might take up the debate over raising the state sales tax .5 percent, from 6 percent to 6.5.

Area legislators and economists have come out against the proposal, as it could potentially stifle the economy it an attempt to buoy the state.

"We shouldn't be looking at any additional tax increases until we look at options for reducing spending," said state Rep. David Scribner, who represents Brookfield and part of Bethel in the 107th. "It would not be wise to do such a thing when the economy is more fragile than it's been in decades."

"It's idiotic," said Professor Fred Carstensen, director of the Connecticut Center for Economic Analysis at the University of Connecticut. "The fact that they [legislators] suggest this shows how little they know and how ill informed the state government is. They don't do the analysis they need to."

Some lawmakers are considering bumping the sales tax rate and abolishing exemptions in order to close the gaping deficit. A deficit Carstensen said is closer to $5 billion than $3.4 billion.

Some speculate a hike in the sales tax could raise about $270 million. Others said it's too soon to tell.

"When people are already reluctant to part with any money they're fearful," Scribner said, "If we signal that we're going to raise the sales tax, they're going to be much more reluctant to go out and buy that television or car that they could live without."

"Both things need to be considered," said state Rep. Chris Perone, a Democrat who represents part of Norwalk in the 137th House District.

As vice-chair of the Finance, Revenue and Bonding Committee, Perone agreed that everything must be weighed and analyzed.

"We have to understand the implications of whatever we do," Perone said. "We are trying to grow our way out of the recession, not put the parking brakes on it."

The state boasts one of the lowest sales taxes in the region. Its base rate of 6 percent hasn't changed since it was introduced in 1991. If the rate increases, Rhode Island and New Jersey would still have a higher rate by .5 percent. Massachusetts would fall below by .25 percent.

In the Greater Danbury area, a significant portion of sales tax comes from out-of-state shoppers from across the border in New York, which already has a lower sales tax: 4 percent.

Shoppers will come from New York to shop, "as long as they feel there's value in doing it," Scribner said.

"Because we are such a small state, we don't want our residents spending in New York if they travel to New York for work on a daily basis," he added. "We have to be very mindful of being competitive." 

House Speaker Chris Donovan, a Democrat who represents part of Meriden in the 84th District, said the legislature would wait until Governor-elect Dan Malloy proposes his budget in February. And then public hearings, on any proposal, will follow.

"We'll weigh all the options," Donovan said. "In the past a huge majority of our caucus favored a slight increase on taxes for the upper income, those earning $250,000 or more a year."

For the first time in more than a year,  on Black Friday. People spent 6 percent more during the Thanksgiving weekend than last year, according to the National Retail Federation.

And though Connecticut shoppers weren't out in droves, more like a dribble, they were there.

The answer lies in cutting spending, not raising taxes, according to state Republicans.

"We have an addiction to spending equivalent to a crack addict," said Al Alper, chair of Wilton's Republican Town Committee. "We need an intervention."

Raising the rate drives people to shop on-line or go to New York and mail their purchases back to Connecticut, said UConn's Carstensen.

To combat that, legislators said stricter rules about Internet sales are needed. Current law requires people pay sales tax on goods purchased tax-free either out-of-state or online. That's the "use tax" which residents should report on their state income tax returns. Most people don't pay it.

In 2009 the state only raised $13.4 million in use tax, or less than one-half of 1 percent of all sales tax revenue.

Accordingly, some policy-makers believe the state should consider a more comprehensive but lower sales tax, similar to North Carolina. There the state has a 3.5 percent sales tax that applies to everything.

Carstensen wants Connecticut to follow suit, but include a tax rebate on basic food and clothing for the lowest income levels. That would eliminate the regressive nature of a broad sales tax.

Anything else is illogical according to Carstensen.

"It's grasping at straws," he said. "It's is an ill-conceived, inappropriate measure. It may be politically preferable to do a sales tax, but it's wrong to think people aren't aware about the tax."