Connecticut Governor M. Jodi Rell vetoed legislation that would have taxed bonuses paid to people who work for financial companies that received TARP funding. The Governor said that while she agrees that the bonuses were inappropriate, the bill will likely trigger a legal battle. The legislation would have added a temporary 2.7% income-tax, bringing the top rate in the state to 8.97%. The bill was approved in both houses with significant majorities but not enough to override the veto.
The Governor also vetoed a tax exemption for small businesses which would have axed the $250 per year business entity tax, which currently adds $12 million to state revenues each year. The exemption would have created a funding gap that would not have been recovered through the TARP tax. The tax was originally proposed as a means to offset the loss of the business entity tax. According to estimates from the Governor’s office the TARP tax would’ve raised $2.8-4.7 million.
“However well-intentioned, I cannot sign into law a bill that creates an instant budget deficit,” Governor Rell said. “And while – like many people – I am outraged that any business that took a federal bailout would be paying out big bonuses to its executives, the law does not permit us to target individuals with punitive taxes. Many legal experts have warned that this legislation would certainly be challenged as exactly that.
“Even if the TARP tax were to survive such a legal challenge, the court case would be long and expensive, adding to the burden on Connecticut’s already hard-pressed budget,” the Governor said. “And given the state’s precarious financial condition, we would be taking chances we cannot afford to take if we were to spend the revenues from that tax until the court case was definitively resolved. All in all, this is simply not a bill I can support.”
Connecticut is home to some of the financial institutions that received TARP funding. The bill is said to have been aimed at the bonuses given to AIG employees following the long and very public hearings about the company’s financial dealings.