Tax relief expected to dominate CT legislature’s budget plan this week
With state government’s coffers overflowing, the legislature’s finance committee is expected to recommend income tax relief for working poor and middle class households, including a new child tax credit.
The Finance, Revenue and Bonding Committee also is expected to dedicate a portion of future state budget surpluses to support early childhood learning and development.
But it remained unclear late Monday whether another budget panel, the Appropriations Committee, would endorse Gov. Ned Lamont’s full plan to lower the cap on municipal car taxes, or whether it would offer a scaled-down version.
“I think what we’ve been working on is a historic investment in providing relief for the families I have been focused on,” said Rep. Sean Scanlon, D-Guilford, co-chairman of the finance panel.
That group is scheduled to meet Tuesday and Wednesday to complete its work, while the Appropriations Committee tentatively planned to wrap up its proposals on Thursday.
Scanlon declined to provide full details, but said Democrats are planning to keep the tax relief commitments they made coming into the 2022 legislative session back in February.
House Speaker Matt Ritter of Hartford and Senate President Pro Tem Martin M. Looney of New Haven vowed then to increase the state income tax credit for the working poor to its highest level in its 11-year history.
The Connecticut Earned Income Tax Credit would grow from 30% to 41.5% of the federal EITC. [Gov. Ned Lamont used federal pandemic aid to boost the state EITC for 2020 and 2021 to 41.5% of the federal credit.]
Making the increase permanent would provide, roughly, an extra $300 to more than 185,000 households. To qualify for the EITC in 2021, a filer had to earn $57,414 or less.
The package also is expected to create a new child tax credit within the state income tax.
Scanlon, who has spearheaded this proposal, has called it crucial to begin reforming a state and municipal tax system that overburdens middle income households.
The Guilford lawmaker said he eventually would like the state to offer a credit of $600 per child, up to a maximum of $1,800, but that this relief likely would have to be phased in over several years.
The full relief program as envisioned would cost about $300 million per year.
Lamont has warned that U.S. Treasury rules restrict the tax cuts states can offer next fiscal year if they accepted federal pandemic relief. Congress sent more than $3 billion through the American Rescue Plan Act directly to Connecticut’s state government, with billions more sent to municipalities and school districts.
Lamont estimates that those federal restrictions won’t permit total state tax relief in the next budget to exceed $200 million.
The income tax cut proposed for Connecticut’s working poor would cost the state $42 million per year.
And Lamont has a few tax-cutting ideas of his own the committee is expected to back this week.
Connecticut currently offers a $200 income tax credit to middle class households to offset property tax burdens, but it has been limited since 2018 to seniors or to families with children. The governor’s plan would restore eligibility to all households within income limits and would boost the credit to $300.
It was unclear late Monday to what level the finance committee proposal would boost the credit.
Lamont also would accelerate planned tax relief for retirees and reward businesses that help employees pay down student loans.
The governor’s proposals, coupled with pledged tax relief for the poor, would eat up all of the allowable room for tax cuts next fiscal year under the federal restrictions.
But Scanlon said Monday that even if some relief has to be deferred a year or two, legislators are confident it will be “substantial.”
Both Scanlon and the Finance Committee’s other co-chairman, Sen. John Fonfara, D-Hartford, said they’re hopeful the tax package will enjoy bipartisan support.
And while there could be GOP votes for tax cuts this week, Republicans still will be disappointed.
That’s because the Democrat-controlled committee opted to pass on the tax-cutting proposals of their Republican colleagues.
Senate Republicans wanted to roll back the state sales tax — for 2022 and possibly longer — from 6.35% to 5.99%, to suspend the 1% surcharge on prepared meals, and to repeal the new highway use tax on large, commercial trucks.
“We do our best to put our best bills together so it benefits the most in the state of Connecticut — and unfortunately it falls on deaf ears,” said Sen. Henri Martin of Bristol, ranking Senate Republican on the Finance Committee.
The House GOP, which also wanted to scrap the highway levy, proposed elevating the property tax credit to $500 per household. The caucus also wanted to create a new income tax credit for renters, and to index all state income tax brackets to the rate of inflation.
Rep. Holly Cheeseman of East Lyme, the top House Republican on the finance panel, said it is frustrating that substantial relief proposed by her caucus — and mirroring concepts endorsed by a progressive policy think-tank with high standing among Democrats — didn’t get more consideration.
“It’s unusual for Connecticut Voices for Children and Republicans to agree,” she said.
But Republicans might not be the only ones disappointed this week.
It was unclear late Monday whether the Appropriations Committee, which recommends the spending side of the budget, would accommodate another key relief proposal of Lamont’s: a freeze in motor vehicle taxes.
This issue is pending before the Appropriations Committee because car taxes are collected by cities and towns. Lamont wants to lower the statewide cap from 45 mills to 29. [One mill equals $1 in tax per $1,000 of assessed value.]
The state budget comes into play with this plan because Lamont also wants to spend $160 million annually, sending it to municipalities to replace the revenue they would lose due to a lower cap.
The Appropriations Committee’s co-chairwomen, Rep. Toni E. Walker, D-New Haven, and Sen. Cathy Osten, D-Sprague, would not discuss what new cap level their panel would support.
But both acknowledged it would be difficult for the legislature to adopt the governor’s full plan and not sacrifice several other spending priorities set by rank-and-file lawmakers.
The committee is trying to expand funding for a child care industry and public colleges and universities both rocked financially by the coronavirus pandemic, Walker and Osten said.
Connecticut also must be ready to implement the comprehensive school choice plan it submitted in January to end 33 years of litigation over how to redress segregation in the schools of Hartford and its suburbs.
Lawmakers also fear a potential staffing crisis in state government with veteran workers retiring in droves this spring — just before retirement benefits are tightened in July in accordance with a 2017 deal with unions.
“You cannot run government without people,” Walker said, adding that the budget Lamont proposed in February for the fiscal year starting July 1 didn’t include adequate funds to refill vacancies. “We have a crisis in personnel right now.”
“There were holes in the Executive [Branch’s] budget,” Osten said, adding that the committee plan “is really a COVID relief budget. The aftermath of COVID has been exacerbating some of the issues that have been bubbling up, but have finally reached their peak. ”