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Connecticut governor wants to scale back tax hikes

HARTFORD, Conn. - Gov. Dannel P. Malloy on Friday called on lawmakers to scale back some of the tax increases his administration helped negotiate in a new state budget that prompted some major employers, including General Electric Co. (GE), to discuss moving out of Connecticut.

The Democratic governor unveiled his so-called budget improvement plan, which rolls back nearly $224 million in tax increases over two years.

The two-year, $40.3 billion budget agreement, reached between the Democratic leaders of the General Assembly and Malloy's administration, increases taxes by about $1.5 billion. The revenue would help replenish some of the cuts to social services that Malloy originally proposed and help cover a projected two-year, $2.5 billion deficit. Many of those tax changes affected businesses, prompting an unusual public outcry from the corporate community.

Malloy still praised the plan, which dedicates a small portion of the state's sales tax to transportation improvements and local property tax relief. However, he said he heard the complaints.

"It's a budget we should be proud of, but that doesn't mean we shouldn't continue to listen to the voices of Connecticut when it comes to improvements that we can make in this historic progress," Malloy said.

Democratic leaders did not publicly sign off on Malloy's plan. House Speaker Brendan Sharkey, D-Hamden, said they'll take the proposal "under advisement." Legislators are returning this month for a special session to take up budget-related and other unfinished bills. No date has been set.

Republicans urged Malloy to veto the bill, promising to help him prevent a potential Democratic veto override. Canton Sen. Kevin Witkos, the second-highest ranking Senate Republican, said Malloy's plan only offers a "Band-Aid approach."

"It doesn't do enough," Witkos said. "We need to have the governor veto it and bring us all in."

Under Malloy's plan, proposed sales taxes on car washes and non-metered parking would be scrapped.

The plan also reduces proposed tax increases on computer, data processing and Web services, capping them at the current 1 percent. Additionally, a proposal requiring companies with a presence in Connecticut and other states to pay taxes based on net income would be deferred to Jan. 1, while the state's tax credit cap for corporations would be raised from 50 percent to 55 percent. That still would mean a financial hit for firms. Companies investing in research and development currently can use 70 percent of the credit to reduce tax liability.

In a written response, GE said: "The governor and the legislature should do the right thing for small and large businesses and the citizens of Connecticut to improve the economic vitality of the state."

Aetna Inc. (AET), which also suggested it might leave the state, indicated the proposed changes are a positive sign.

"While the Connecticut business climate continues to be very challenging, this announcement is a step in the right direction," Aetna said.

The Travelers Companies Inc. (TRV), which publicly criticized the Democratic tax package, said it is pleased Malloy listened to the business community and proposed changes.

Malloy is asking lawmakers for authority to cut state spending up to 1.5 percent across the board, not ruling out cuts to municipal aid. Malloy said he's open to legislators deciding where to make cuts to cover the tax increase-rollbacks.

Joe Brennan, president and CEO of the Connecticut Business and Industry Association, said he's pleased Malloy offered changes. He met with Malloy Friday morning to discuss association members' concerns about the tax increases and their hope that state spending would be cut further.

"On balance, I think we're pleased that we're talking about these things instead of just talking about companies relocating out of state, because we were seriously, seriously concerned about an exodus of good-paying jobs out of state," Brennan said.

Malloy has not yet signed the budget bill. He said his proposed changes could be included in the budget-related bills that need to be approved during the special legislative session.

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