Republican Gov. M. Jodi Rell has vowed to veto a Democratic plan to tax the huge Wall Street bonuses awarded by firms that received federal bailout money.
The bonuses to high-level executives at AIG and other bailed-out Wall Street companies prompted huge outrage across the country, and state Senate Democrats responded by calling for a special surcharge to tax the bonuses.
The narrowly written provision would apply only to bonuses of $1 million or more in 2010 and 2011 – and would only apply to executives at companies that were bailed out. With concerns about a special tax increase on a relative handful of people, Rell and some attorneys are questioning whether the idea is Constitutional.
“How will the state credibly estimate revenues at the time of the passage of the bill? How will the tax be enforced?” Rell asked in a letter Wednesday to top legislative leaders. “Can and will the tax be avoided by employers restructuring the bonuses, and how will this affect the state’s proposed revenue? Simply put, at this time, there are too many uncertainties surrounding the proposed tax surcharge to make reliance upon it responsible.”
Rell added, “Thus, I would be forced to veto any such proposal or proposals even though most people in the state rightly believe that such executive bonuses were, at a minimum, inappropriate given the use of federal taxpayer funds to bail out their host companies.”
But Senate President Pro Tem Donald Williams, one of the chief proponents of the tax surcharge, said Rell was siding with Wall Street fat cats instead of with Main Street.
“It’s a smoke screen,” Williams said of Rell’s position. “Folks in Washington have opined that this is Constitutional at a much higher [tax] rate.”
One of the ideas in Congress is to tax the bonuses at 90 percent – thereby almost erasing the entire bonus.
“Ours is a three percent surcharge,” Williams said Wednesday night. “Ours is much different and extremely reasonable.”
The current maximum income tax rate in Connecticut for couples earning more than $1 million per year is 6.5 percent, and the surcharge would add another 2.97 percent to that rate. One bill on the bonuses has been voted out of the Democrat-controlled commerce committee, while another is pending in the tax-writing finance committee.
Rell’s comments came one day after Attorney General Richard Blumenthal said that taxing the bonuses was “likely” constitutional. Rell ripped that ruling, saying it “is hardly a steadfast legal endorsement, and studied opinions to the contrary have already been offered.”
She distributed a legal opinion that was contrary to Blumenthal’s view, adding, “The final determination about the legality of such a proposal will undoubtedly be determined by a court of law at some future date.”
Williams countered that the idea is essentially a self-contained proposal that can pay for itself and can allow the suspension of the $250 annual fee that is paid by 46,000 small businesses across the state. The so-called “business entity tax” would be suspended for two years for small businesses only, even though some large corporations are registered as limited liability companies in essentially the same way as small businesses.
Longtime banking reporter Kenneth Gosselin’s story on Blumenthal’s ruling is at http://www.courant.com/business/hc-tarp-bonustax-blumenthal.artmar24,0,602937.story