New Haven Independent

On a local campaign stop, Dannel Malloy revisited the question of the estate tax’s future — a question that partly defined his last campaign for governor. During a taping of N’ZInga Shani’s public-access television program “21st Century Conversations,” Malloy called the little-discussed change negotiated by Gov. M. Jodi Rell and statehouse Democrats “out of left field.”

You may remember Malloy. And you may remember his position on the estate tax.

Malloy ran for governor in 2006. He’s traveling the state these days in anticipation of seeking the Democratic nomination again in 2010.

In a close primary race in 2006, Malloy, who’s Stamford’s mayor (retiring at the end of this year), lost the Democratic nomination to John DeStefano (who’s New Haven’s mayor). They had roughly similar views. They supported universal health care and a general outlook that government can be the solution, not the problem, in tackling state challenges from energy to public education to job losses.

The estate tax was one clear difference. People pay the tax when someone dies and the estate is transferred.

DeStefano opposed Gov. M. Jodi Rell’s proposal to eliminate the estate tax. He called it an unnecessary gift to the wealthy in tough economic times. Malloy said he was open to considering Rell’s proposal. He agreed with her argument that the estate tax drives wealthy taxpayers to live in other states.

Fast forward to 2009. As part of her recent budget deal with legislative Democrats, Rell succeeded in saving some wealthy people from paying the estate tax. The new budget raises the threshold at which estates get charged a state tax, from $2 million to $3.5 million. It also eliminates a “cliff.” Until now, an estate worth just one dollar less than $2 million paid no tax. If it was worth one dollar more than $2 million, it would be taxed in full. The new budget deal changes that. Estates will be taxed only on value above the $3.5 million cut off.

Those changes will cost the state an estimated $177 million a year in lost revenue beginning in 2010. The governor wanted to wipe out the estate tax altogether, noted State Senate Democrats spokesman Derek Slap. “As part of the budget agreement with Gov. Rell, Democrats agreed to changes in the estate tax, but not the total elimination of it as Gov. Rell wanted.”

Malloy answered questions about the estate tax vote for more than four minutes on Shani’s program. Click on the play arrow at the top of the story to watch. (This reporter was on the panel asking questions.)

First Malloy clarified his position in 2006, which he said hasn’t changed (and which he said the Independent mischaracterized at the time).

One of his main concerns was the cliff, he said. Malloy was asked: Does that mean he’d favor starting to tax estates gradually at a lower threshold? Or tax them less at a higher threshold and phase it in from there (as the legislature and Rell agreed to do)?

His response: “We need to look at every tax to measure how they allow us to compete” with other states, he responded.

Pressed, he said that he wants to look at all taxes and the state’s current needs before saying whether he’d raise them or cut them. He noted that as Stamford’s mayor he has sometimes raised taxes, sometimes cut them. In addition, in April, as a potential gubernatorial candidate, he called for raising taxes, by making the income tax more progressive.

The competitive argument brought up concern number two: That an estate tax, in his view, convinces people to move to states without such levies, thus depriving Connecticut of needed revenue. Other Democrats who favor the tax argue that the state loses a lot more money by rolling back or cutting the tax.

Malloy was asked if he ever met someone who moved out of Connecticut because of the estate tax. “Have you ever visited Florida?” he responded.

In any case, Malloy said that last month’s budget deal addressed neither of his concerns. Raising the threshold didn’t help the state’s budget mess or resolve questions about the estate tax, he argued.

“I thought the governor’s proposal coming as it did was an unusual out-of-left-field proposal.” Malloy said. “I’m not sure it got to the heart of the matter.” He noted that Rell in the past signed onto a hike in the estate tax. People didn’t mention that in the discussion of what happened this year, he said.