Since S&P’s recent downgrade of the U.S. federal debt, all investors, from the very smallest to the most affluent, are being subjected to wild swings in the financial markets. Unemployment is hovering above 9%. Consumer confidence has dropped to its lowest level in 30 years.
Meanwhile, here in Connecticut, there is still a $1.6 billion gap in the state budget, and the question of how it will be filled remains unresolved. The state employee union concession package that was supposed to generate the necessary savings was voted down by the unions in June. Although Governor Malloy had said that a no vote would mean layoffs and cuts to programs and services, the unions have been given an opportunity to vote again.
If the unions maintain their no vote, there will be state employee layoffs (including hundreds for which notices have already been sent), and cuts to programs and services proposed by the governor will take effect. If the unions vote yes, many of the layoff notices already issued will be rescinded, and the concession package will take effect. If this happens, however, the budget may still not be balanced, because about half the projected savings in the concession package cannot be verified by the nonpartisan Office of Fiscal Analysis.
Whatever happens, there will be no changes to the historic tax increase of nearly $4 billion which took effect on July 1, and which I did not support. And while we wait on the final union vote, due to happen next week, rumors have been flying about the fate of many state programs and services. I have received many calls from both municipal officials concerned about longstanding grants and from constituents worried about whether various services for the elderly and disabled will continue. They have been waiting on tenterhooks for answers for the last two months.
With so much uncertainty in the air, it’s hard to plan. As you manage your own and your families’ budgets, here are a few things that you should remember in the coming weeks:
• July 1 income tax increases: retroactive to January 1, 2011
- If you pay your income taxes using quarterly estimates, your September 15 installment is coming up, and you must adjust your payments to reflect the applicable tax rate for the year. You may want to speak with your tax advisor about taking into account new rates and retroactivity.
- If you receive a paycheck from an employer, you should see changes in the amount withheld, beginning on August 15 – reflecting both the new rates and the retroactivity.
For information on both quarterly estimates and paycheck withholding, here is the link to the site of Connecticut’s Department of Revenue Services: http://www.ct.gov/drs/cwp/view.asp?Q=480946&A=1463&drsNav=|
• Sales tax free week, which takes place from August 21 through August 27, is coming up. That week, there are no taxes in CT for sales of clothing and footwear under $300. This is a good opportunity to save, since Connecticut’s longstanding sales tax exemption for all clothes and footwear under $50 is now gone, and the overall state sales tax rate has been increased from 6% to 6.35%.
• Estate tax changes: retroactive to January 1, 2011. New estate tax rules apply to estates of anyone who died on or after January 1 of this year. Estates exceeding a value of $2 million are affected.
In what is otherwise a constantly changing and unpredictable context, Connecticut’s tax increases seem to be the one absolute certainty. I did not support them, but I will do everything I can to make sure you are aware of information that may affect you and your family.