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1 percent meals surcharge is the next CT state tax to fall

Connecticut is on a roll when it comes to cutting taxes, so if you’re betting on the next state levy to fall, the 1 percent surcharge on prepared foods is the place to look.

Like I said, we’re on a roll — with mustard and cheddar — and it seems likely the hated meals tax surcharge, which started on Oct. 1, 2019, will end over the next year, bringing down the price of that sandwich.

Republicans want the cut now as part of a new demand for more state tax cuts, which they were set to, um, roll out Tuesday. But don’t look for it to happen before 2023.

Republicans also want relief on a diesel fuel tax increase set to take effect July 1, and a halt to a road tax on heavy trucks, which starts Jan. 1. Those changes are less likely to happen.

Gov. Ned Lamont is leaning toward asking the legislature to revisit that meal surcharge, he told me in an interview Friday.

Enacted to fill a $1.5 billion budget gap Lamont inherited in 2019, the surcharge brings the total sales tax on restaurant meals and prepared foods in grocery stores to 7.35 percent. It raises somewhere in the range of $70 million a year.

Lamont singled out that tax amid criticism from Republicans after he and lawmakers enacted “only” $600 million in tax cuts and rebates in the recent legislative session.

“If we’re in solid financial position next year as we were this year, we’ll be free to do other things,” Lamont said in West Hartford. Speaking of the 1 percentage point surcharge, he said, “That will be something I will probably put on the table.”

Senate Republicans called for a rollback of the meals surcharge, along with a temporary cut in the underlying sales tax, during the recent legislative session — saying those taxes hurt the middle class, and that relief from those taxes would be immediate.

On Tuesday, Republicans were set to call for the twin tax hikes on trucks — diesel fuel and the hughway use tax. Their argument is that those taxes will hit local businesses that use trucks and consumers through higher prices on store shelves, especially in grocery stores.

While that’s true — all costs trickle down to the buyers of goods and services — the effect is way smaller than many people claim.

The highway tax will generate an estimated $90 million a year. The diesel fuel tax, now 40 cents plus a fraction of a penny, generates about $110 million a year, and it could rise by 25 percent or more under a formula established years ago. The state has not yet announced the amount of the tax.

If it rises by, say, tell me, that would mean the diesel tax increase would total about $30 million. Combined with the highway tax, that’s $120 million. Yes, it will filter down to consumers, but as Lamont has often said, much of it is paid by out-of-state companies — and every state on the East Coast taxes trucks in some way, mostly by tolls.

In other words, Connecticut consumers are paying our share of truck taxes anyway, so why not collect our fair share? Lamont used the example of buying an orange that comes from Florida, for one dollar — maybe ten cents of which represents transportation costs.

“From Florida to Connecticut they go through ten different states. Each of those states has tolls, bingo, bingo, bingo, bingo, and some of them have a highway user fee like New York, for example. By the time you get to Connecticut, what we do here is de minimus.”

That has not been the message of opponents of the truck taxes. Initially, the lobbying group for trucking companies and some Republicans said the highway tax alone would raise the prices for groceries by $500 per family in Connectcut.

That math didn’t even come close to adding up. The tax would raise grocery costs by less than one-tenth that amount, if that. They’ve stopped using funny numbers, to their credit.

Back to the restaurant surcharge: It makes more sense to cut that one because it’s a direct tax on consumers. That’s why Lamont is willing to propose an end to it, and why the GOP call to end it has merit.

As for when it happens, Republicans want a special session now. But first of all, the state just passed a balanced budget that starts July 1 and we don’t yet know whether it will show surpluses. The economy is slowing down and that’s bad for state revenues.

And second, a special session invites everyone — Democrats and Republicans — to bring up all manner of proposals for a vote. Lamont will veto the irresponsible liberal ideas and Democrats will reject the irresponsible tax cuts that cause problems down the road, and we will have chaos ahead of an election. It’s not gonna happen, folks.

Looking at the numbers, even the meals tax cut, which could happen in 2023, is not a huge savings for the middle class. Remember, prepared foods in grocery stores, such as sandwiches over the counter, were already taxed before the surcharge, unlike regular groceries. So, you’d have to spend $10,000 on restaurants and prepared foods — $27 a day, every day of the year — to save $100. Obviously, wealthy families pay a lot more of it.

That’s the same logic as the gas tax at 25 cents a gallon, which Lamont and lawmakers suspended for most of this year. The typical motorist spends about $100 a year on the state gasoline tax — and rich and poor tend to pay for it alike.

It all adds up. When one or another politician says this tax must go because it’s killing the middle class, it’s worth taking a close look at the numbers. And the numbers say the prepared meals tax is worse for Connecticut’s middle class than the truck taxes, no matter what you hear in sound bites.

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