Lawmakers in Connecticut yesterday ended more than seven months of rancorous budget debate after the state's House of Representatives voted 75 to 73 in favor of an income tax.

Gov. Lowell P. Weiker Jr. signed the package immediately after its passage. The governor had steadfastly vetoed budgets that did not include income taxes.

Connecticut citizens filing single tax returns can expect a roughly 4.5% bite to be taken out of incomes over $12,000 a year. That tax is expected to raise $1.87 billion in revenue for the state this fiscal year.

But the state's tax overhaul, which changed the primary revenue source to personal income from sales, could improve the state's reputation in the credit markets.

The new revenue system was praised yesterday by Benson R. Cohn, the state's assistant treasurer for debt management.

"For the shor term," he said, "I and a lot of other people around here are very relieved. For the long term, it puts the state on a much more sound fiscal footing. We expect to be much less subject to the cyclicality in our tax revenues that we have had in recent years."

In addition to tax increases, the package includes tax-cut measures designed to jump start the state's flagging economy.

The state's 8% sales tax levy, the highest statewide tax of its kind, will drop, and its separate tax on interest, dividends, and capital gains will end. Connecticut's corporate profits tax rate also will be lowered, to 12.5% from 13.8%, and then to 11.5% the following year.

The package passed yesterday also calls for spending reforms. Among them was a cap on the state's general obligation debt, whose outstanding amount now totals about $3.95 billion.

The cap would apply to a combination of outstanding as well as authorized, but not issued, general obligation bonds, said Mr. Cohn. The current limit applies only to outstanding debt.

"It should stabilize things," said Mr. Cohn. "When there's a cap, one has to set priorities, when there's no cap, there's no pressure to set priorities."

Mr. Cohn estimated the cap would affect the state's rate of bond authorization before it would actually decrease issuance. In the next legislative session, he said, lawmakers may authorize about $400 million in new debt.

Moments before the final vote, House Speaker Richard J. Balducci, D-Newington, urged passage of the bill. He asked lawmakers "to think about what they're doing." And, he said, "We all will be better off for what we do."

As far as near-term borrowing plans go, the signing of the package will allow the state to come to market Tuesday with a $233 million special tax obligation bond anticipation note issue that had been slated for this Wednesday, Mr. Cohn said.

And as for the taxpayers in the state, many of whom have bristled at the prospect of paying income tax to Hartford, Rep. William Dyson, the New Have Democrat who serves as co-chairman of the joint appropriations committee, said he hoped they would understand the economic realities that finally forced lawmakers' hands.

"They may not like what we do, but they cannot question that we thought we were doing the best thing at the time," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.