Report: Thousands of Connecticut children would slide into poverty if enhanced federal tax break expires
More than 600,000 Connecticut children live in households that could lose millions of dollars in federal assistance next month if Congress remains gridlocked over President Biden’s latest pandemic recovery plan.
That’s according to a new analysis from the Center on Budget and Policy Priorities, a Washington, D.C.-based fiscal policy think-tank. The analysis also warned that about 80,000 of those Connecticut youths are at risk of slipping below the federal poverty level — or sinking deeper into hardship.
And Congress’ failure to date to extend the expanded federal child tax credit program now has prompted advocates for low- and middle-income families to renew their push for a new state income tax break for these households.
“It will be a huge blow” if Congress doesn’t enact the president’s Build Back Better plan by Jan. 15, said Lisa Tepper Bates, president and CEO of the United Way of Connecticut
“If you’re a low-income household, this is a big chunk of your discretionary money,” said University of Connecticut economist Fred V. Carstensen, who added many families here already are reeling from losing enhanced federal unemployment benefits, which expired in early September. “It’s a double-whammy. … Some households will be going back to buying ramen noodles.”
Enhanced federal credit sends thousands of dollars to Connecticut families
Bates and Carstensen are referencing a credit within the federal income tax that had provided working families with annual relief up to $2,000 per child.
Congress bolstered that credit 2021 in response to the economic chaos caused by the coronavirus. Income-eligible families could receive up to $3,600 for each child younger than 6 and up to $3,000 for kids ages 6 to 17.
Another key provision of this temporary expansion allowed families to tap the relief early.
Rather than having to wait until the spring or summer of 2022 for their federal income tax refund, eligible families could receive half of the 2021 credit this year through monthly installments that began in July.
“It’s paid for child care, health care, transportation and other essential services and supports that are too often viewed by those holding elected office as nice-to-have rather than need-to-have,” said Emily Byrne, executive director of Connecticut Voices for Children, a New Haven-based public policy research group. “It’s allowed middle class families to pay down credit cards, mortgages and student loans.”
Those advanced child tax credit refunds were particularly crucial for many unemployed households, Carstensen said. A different federal pandemic relief program, which added up to $300 to weekly unemployment benefits for much of 2021, expired on Sept. 4.
Losing both forms of enhanced aid within a few months of each other would leave thousands of households scrambling fast to adjust, Carstensen said.
It also would remove the fiscal Novocaine that’s been keeping Connecticut’s economy from feeling the full effects of the pandemic.
According to the state Department of Labor, Connecticut has recovered more than 212,500 or roughly 73% of the 292,000 jobs it lost since COVID-19 struck the state in March 2020.
Further complicating matters, Connecticut still hadn’t recovered all of the jobs lost in the recession of 2007-09 when the pandemic struck. Lagging the nation, Connecticut was down about 25,000 jobs entering the March 2020 downturn.
Federal metrics hide the depth of Connecticut’s pockets of poverty
Despite ranking as one of the wealthiest states in the nation, Connecticut also struggles with deep pockets of poverty, especially in its urban centers and its eastern rural communities.
The United Way estimates about 38% of Connecticut households don’t earn enough to meet basic survival needs, a scary projection masked — in part — by severely outdated federal poverty metrics.
The U.S. Census Bureau’s Federal Poverty Level for a family of four in Connecticut is $26,500. Only about 11% of state households fall below this threshold.
But the bureau’s metric focuses chiefly on a household’s pre-tax earnings and the adjusted cost of a minimum food diet — originally set in 1963.
Key elements like health and child care, transportation, utilities and other housing costs aren’t major factors under the FPL, but they are for the United Way’s ALICE methodology: an acronym for Asset Limited, Income Constrained, Employed households.
According to ALICE, that Connecticut family of four needs to earn $90,660 to cover basic survival needs.
Alison M. Weir, a policy advocate and staff attorney for Greater Hartford Legal Aid, agrees that the federal metric has little value.
“You have no idea how little the federal poverty level is,” she said.
Weir noted that the “Self-Sufficiency Standard” prepared for the state Office of Health Strategy is significantly higher than the federal poverty level. A family of four with two adults, one infant and one pre-schooler needs to earn nearly $89,000 annually, according to this standard, to cover basic needs.
State tax relief debate for poor and middle class to heat up in February
State Rep. Sean Scanlon, D-Guilford, who co-chairs the legislature’s Finance Committee, began pushing last year for a new child tax credit within the state income tax system to provide further relief.
The Guilford lawmaker proposed a $600-per-child credit for households making $200,000 per year or less. To ensure poor households — which often owe little or no state income taxes — still could benefit, Scanlon also proposed making 70% of the credit refundable.
For example, a $600 credit for a poor household that owed no taxes normally would yield no benefit, since tax liability can’t be reduced below $0.
But with 70% of the credit refundable, this hypothetical household still could receive a $420 refund from the state, even without owing any taxes.
Gov. Ned Lamont argued the state could not afford the $300 million-per-year cost of the state tax break. The Finance Committee planned to help pay for it by increasing taxes on wealthy households and major corporations.
The governor, a Greenwich businessman, also argued it was unnecessary because he believed Congress would make the enhanced federal benefit permanent.
But advocates for the state credit countered that there was no guarantee Congress would make this relief long-term. And even if it did, that would not be enough to counter the huge poverty gaps established in metrics like the United Way’s ALICE system and the state’s Self-Sufficiency Standard.
“If you do the math,” Bates said, “it’s just not enough.”
The General Assembly compromised in June, shelving Scanlon’s proposal for now but stipulating Lamont must at least draft a plan to implement a new state child tax credit if the federal credit hasn’t been made permanent by January.
Scanlon said Wednesday that he fully expects to renew the debate of state tax relief for Connecticut’s low- and middle-income households when the 2022 General Assembly session launches in early February.
“I see more reason to have a debate” now, he said, noting Congress can’t even decide on extending enhanced federal relief for one more year.
“Everyone said ‘Don’t worry about it, the feds are going to make that permanent,’” Scanlon said. “I said, ‘Do you pay attention to Washington, D.C.? Do you watch what’s going on down there?’”
U.S. Sen. Chris Murphy, D-Conn., said this week he remains confident that a one-year extension of the expanded federal child credit would be enacted — but was unsure whether it would get done before mid-January.
“I think it’s been a rousing, life-changing success,” he said. “I wish more people knew about it.”
But the child credit extension is just one element in the Build Back Better legislation, which also includes funding for other COVID-19 relief, transportation, social services and environmental programs. And many elements of this plan remain subject to intense debate.
Daily COVID-19 test infection rates in Connecticut have topped 8% this week and continue to rise in many other states as well as concern over the highly contagious omicron variant grows.
“The pandemic continues to bring us surges and waves and with that comes not only people in the hospital but significant economic impact,” Murphy added. “There has to be an economic resource for families.”