Malloy Reaches Budget Deal With Democrats

A revised budget unveiled Wednesday by Democratic legislative leaders and Gov. Dannel P. Malloy restores an array of popular middle-class sales tax exemptions, while increasing inheritance taxes and a levy on expensive cars, boats and jewelry.

The revisions, which would trim Malloy's $1.5 billion tax increase by $116 million and make modest shifts in spending, will be approved Thursday by the legislature's Finance and Appropriations committees, leaders said. The Senate may vote on the budget as soon as next week.

Haircuts will remain tax exempt, along with automobile trade-ins, car washes, and boat repairs and storage. And the deal abandons Malloy's proposal to eliminate an annual sales-tax free week, which costs the treasury $4.2 million. But the exemption on clothing under $50 will disappear.

"The revenue increases have been modified to help preserve jobs and protect families struggling in these tough times," said Senate President Pro Tempore Donald E. Williams Jr., D-Brooklyn. "Make no mistake, there is still much work to be done. This is not the end of the budget process. But it is a giant step forward."

The tax revisions eliminate some of Malloy's proposals that raised relatively little revenue, while generating an outsized political outcry heard by legislators and Malloy. Restoring the exemption on clothing under $50 would have cost about $130 million, too much to make up elsewhere.

The two biggest sales-tax changes roll back Malloy's plan to tax items bought with coupons or discounts at their original value and to tax the value of automobile trade-ins. Those levies would have raised $45 million and $40 million respectively.

To partly offset those tax cuts, Malloy acceded to the wishes of liberal Democratic legislators, particularly those in the House, to land more heavily on the wealthy. Revenue from the luxury tax he proposed would jump nearly tenfold, from $1.2 million to $11 million.

The luxury tax on clothing costing more than $1,000, jewelry above $5,000 and cars and boats above $50,000 would jump from 3 percent to 7 percent. Instead of being applied only to the portion of the price above those threshold amounts, it would apply to the entire purchase.

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