An attempt to do away with Connecticut's new tax on wages appears headed for death by veto even if it passes in state Senate voting today, because too few lawmakers have joined the state's sputtering tax rebellion.
"It's extremely unlikely that this will become law," said Benson R. Cohn, the state's assistant treasurer for debt management. "They did not muster enough votes in the House to override a governor's veto."
On Monday, members of the state's House of Representatives passed the income tax repeal bill by an 86 to 63 margin -- 15 votes shy of the two-thirds majority needed to override a veto.
The state Senate yesterday shelved plans to take up the package, postponing activity until today, with amendments to the bill expected.
Connecticut's historical precedent -- an income tax revolt in 1971 -- was successful. Public outcry forced lawmakers to reverse approval of a tax on citizen's wages and salaries.
But voters had less time to prepare for the tax back then, according to Morton J. Tenzer, associate professor at the University of Connecticut.
"In 1971, it happended much faster. People were not prepared for it," Mr. Tenzer recalled. "Here, you have something that's been in the works for many months, and we've seen a gradual dissipation of taxpayer revolt."
Gov. Lowell P. Weicker Jr., who took the bold step of calling for an income tax early this year, vetoed several proposed alternatives until the income tax-based plan was implemented in August. Budgets based on income taxes, he argued, are more stable than those based on sales and corporate profits levies.
This latest candidate to replace the income tax -- which would give state taxpayers a $389 million break -- would provoke the same response from the governor, according to the governor's press secretary, Avice A. Meehan.
Rating agencies have reacted with mild alarm to the revolt. Fitch Investors Service, for example, placed the state's AA-plus rating on FitchAlert with negative implications.
The substitute tax bill would raise the state's sales tax from its current 6% to 8.25%, with the top 0.25% of the tax being dedicated to a fund backing the state's outstanding fixed - and variable-rate deficit notes.
At present, those one-to-five-year deficit notes are backed by general revenues, and the proposed dedicated stream is aimed at lowering the state's refinancing costs on those notes, $965.71 million of which are outstanding.
Mr. Cohn said the proposal could prove more trouble than it's worth.
First of all, Mr. Cohn said, the lawmakers assumed refunding bonds will come to market at lower interest rates, an assumption he termed "not realistic" because he said he believed municipal interest rates had not changed dramatically enough since September, when the notes came to market. Yields on Aa-rated five-year bonds, according to Delphis Hanover Corp., have dropped 25 basis points in the past three months, to 5.30% on Dec. 5 from 5.55% on Sept. 12.
Mr. Cohn said he has met with the bill's author, Rep. Reginald L. Jones, R-Darien. He said Mr. Jones agreed to alter the bill if it returns to his chamber so only $200 million to $300 million of the deficit financing loan would require refinancing. Mr Cohn said most of that would be done as a series of current refundings.
If the income tax repeal passes the Senate and is then vetoed by the governor, "at the end of that whole process, we're still where we are today," said Rep. Richard T. Mulready, D-West Hartford, and co-chairman of the state's finance, revenue,a and bonding committee. "Then we'll talk about a repair movement" to ease the income tax's burden on the state's poor.
Mr. Mulready predicted the General Assembly, now in special session to address grievances over the new tax, would devise an income tax-based compromise before the end of the month.