House GOP budget plan ups the ante on CT tax-cutting proposals
Minority House Republicans in the General Assembly unveiled a $50.7 billion budget proposal Tuesday for the next two fiscal years, centering the plan on close to $700 million per year in tax relief.
The package, which marks the first GOP budget proposal since 2017, features a broad-based state income tax cut but includes a new deduction for families with children, expands business tax relief, repeals a new highway tax on commercial trucks — but scraps proposals to boost help for the working poor.
The budget, which is the GOP’s counter to earlier proposals from Gov. Ned Lamont and Democratic-controlled budget panels, also would expand funding for education and social services while rejecting a Democratic plan to shift hundreds of millions of dollars outside of the spending cap to bolster municipal aid.
But the Republican initiative also would rely on on big savings by keeping many state agency jobs empty — something labor leaders and others say cannot happen as the public sector already faces a staffing crisis. It also would block a Medicaid rate hike to make more medical specialists available for poor patients while canceling HUSKY health insurance coverage for undocumented children younger than 12.
“I think the middle class has been the ignored group for a long term in the state of Connecticut, and we certainly hear from them on how they can’t make ends meet,” said House Minority Leader Vincent J.Candelora, R-North Branford, who joined other caucus leaders in highlighting the plan Tuesday at the Legislative Office Building.
Tax relief for families, businesses, seniors and consumers
With state finances on pace for a $2.9 billion surplus this fiscal year — the second-highest in state history, topped only by $4.3 billion last summer — Republicans insisted officials must get more aggressive about providing relief.
Taxpayers have been rocked by inflation and the coronavirus pandemic, and the GOP insisted Connecticut could offer more than has been pitched by Lamont, or by his fellow Democrats in the House and Senate majorities.
Republicans matched Lamont in proposing the first income tax rate cut since the mid-1990s.
Like the governor, the GOP would reduce the two lowest marginal rates in income tax system. The 3% rate, applied to the first $10,000 earned by singles and $20,000 earned by couples, would drop to 2%.
The 5% rate charged to the next $40,000 earned by singles and $80,000 earned by couples would drop to 4.5%. The Democratic-controlled, Finance, Revenue and Bonding Committee has endorsed a slightly more modest rate-cutting plan.
And unlike Lamont or Democratic legislators, the GOP would start its income tax-cutting plan this year, rather than waiting until January. To ensure there are adequate funds to cover relief owed between January 2023 and the close of this fiscal year on June 30, Republicans agreed to dedicate $300 million from this year’s projected surplus to meet that expense.
Republicans also agreed with Lamont to save small and mid-sized businesses about $60 million annually by reducing the levy on firms that don’t file corporation taxes.
Republicans also matched Democrats by agreeing to broaden and income tax exemption for certain pension and annuity earnings.
And the GOP also went on its own in three other forms of relief.
It would restore the sales tax exemption on children’s clothing costing less than $100, saving consumers about $8 million annually.
The new highway use tax on commercial trucks — something Republicans say only boosts transportation costs and ultimately inflates the price of consumer products — would be repealed entirely.
And the GOP proposed to create a new income tax deduction for families with children — instead of supporting the very different child tax credit backed by many Democrats and progressive policy groups.
The deduction would lower a middle-class families’ taxable earnings by $2,000 per children. For example, $2,000 taxed at 4.5% is equal to a $90-per-child savings. Republicans estimate this would save families in total about $56 million per year.
By comparison, progressive Democrats fought for a credit against taxes owed as high as $600 per child, which would translate into $600 added to a family’s refund.
Many progressives also favored making a significant portion of that credit, as much as 70%, refundable. If a poor household has no income tax liability, a deduction will have no effect on their refund. But a refundable credit if added to a household’s refund tally, even if tax liability already has been reduced to zero.
Republicans also did not support proposals from Lamont and from Democratic lawmakers to bolster the state’s existing income tax credit for working poor families, plans that would send $200 to $300 annually to families generally earning less than $60,000 per year.
Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance committee, said the child deduction and planned relief for retirees would encourage many people to work and retire in Connecticut.
“Connecticut is one of the few states in the country that doesn’t recognize family size in its tax code,” she said. “We know how our seniors have suffered,” she said. “We want them here today.”
The Republican plan overall offered about $700 million per year in tax relief, compared to roughly $500 million from Lamont and $300 million from the Democratic legislators.
Lamont and top Democratic leaders in the House and Senate offered cautious statements in response to the GOP proposal, thanking House Republicans for their efforts and pledging to assess the proposals carefully.
“We Democrats will review the House Republican budget proposal to find areas of potential agreement and points for additional conversation,” said Senate President Pro Tem Martin M. Looney, D-New Haven.
“I appreciate House Republicans’ hard work to put together a budget,” said House Speaker Matt Ritter, D-Hartford, who added he is somewhat concerned about a Republican initiative to achieve big savings through staffing efficiencies. But with a Republican plan on the table, he added, “we are in a stronger position to achieve our goal: a bipartisan budget.”
Lamont praised Republicans for helping to change the Capitol’s budget culture. “Rather than debating what services to cut or taxes to raise, we are instead debating the size of the tax cut we will deliver to Connecticut residents,” he said. “To continue that momentum, we need to pass an honestly balanced budget that invests in Connecticut’s growth, avoids the gimmicks and mistakes of the past, and adheres to our spending and revenue caps. I look forward to beginning negotiations with legislative leaders.”
Senate Republicans haven’t proposed a budget to date, but Senate Minority Leader Kevin Kelly, R-Stratford, said the House GOP package “is the best we have seen thus far in the process, and we applaud them for their effort in putting it forward. It contains significant tax cuts which will help working and middle class families, and it abides by the smart fiscal guardrails we all agreed to.”
GOP insists it made hard spending choices, avoided gimmicks
On the spending side, Republicans matched many of the priorities of Lamont and Democratic-controlled budget panels.
But it was difficult to determine all areas of difference, in part because full details were not immediately available on how Republicans would spend emergency federal pandemic relief.
Democratic legislators also wanted to carry $260 million from this fiscal year’s surplus into the next two-year budget cycle — chiefly to bolster higher education, but also to support local health clinics and social services.
Republicans did top Democrats in spending, though, when it came to the nonprofit agencies that deliver the bulk of state-sponsored social services.
The GOP proposed a 2.5% rate hike for these nonprofits, adding $50 million to the industry in 2023-24 and retaining that increase in 2024-25.
Democrats had proposed a 1% hike and Lamont offered nothing. The industry says its annual payments from the state haven’t kept pace with the Consumer Price Index for more than a decade and now are $480 million per year below 2007 levels once adjusted for inflation.
Republicans also added about $140 million to Democrats’ proposals for the biennium for local education, increasing Education Cost Sharing grants to local districts and bolstering Excess Cost grants — which help cover expenses for special needs students.
“We have woefully underfunded education in the past [few] years,” said Rep. Tammy Nuccio of Tolland, ranking House Republican on the Appropriations Committee, who added that the Republican plan falls under the state spending cap in each of the next two fiscal years.
The GOP budget also increases funding for domestic violence victims and services for the homeless — but also recommends cutbacks in areas Democrats may find hard to accept.
The GOP budget would reverse a recent initiative to provide HUSKY Medicaid coverage to undocumented children younger than 12. It also rejects a Democratic proposal to boost Medicaid rates for specialist doctors who treat poor patients.
Perhaps the most controversial savings item in the GOP plan, though, involves capturing $210 million over the next two fiscal years combined from unfilled state positions.
Lamont proposed $100 million in savings while Democratic lawmakers suggested none.
Republican leaders said Tuesday there clearly are staffing needs in some state agencies, but it is pointless to budget significantly more funds in this area given the struggles the Lamont administration has faced in recent years trying to fill jobs.
Through the first three quarters of this fiscal year, the administration has reported it expects to leave $100 million unspent in various agency salary accounts, including $80 million in human service and health care agencies.
Nuccio and Candelora said House Republicans also want to launch initiatives to cut costs and maximize efficiencies at public colleges and universities and in the state’s public transit system.