Tax relief set to dominate CT Legislature’s budget plan this week

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As state government coffers overflow, the Legislature Finance Committee is expected to recommend income tax relief for working poor and middle-class households, including a new tax credit for children.

The Committee on Finance, Revenue and Bonds should also dedicate a portion of future state budget surpluses to support early learning and development.

But it was unclear late Monday whether another budget committee, the Appropriations Committee, would endorse Gov. Ned Lamont’s full plan to lower the municipal car tax cap, or if he would propose a scaled-down version.

“I think what we’ve been working on is a historic investment to help families that I’ve been focused on,” said Rep. Sean Scanlon, D-Guilford, co-chair of the finance committee.

This group is due to meet on Tuesday and Wednesday to complete its work, while the appropriations committee has tentatively scheduled to wrap up its proposals on Thursday.

Scanlon declined to provide full details, but said Democrats plan to maintain the tax relief commitments they made during the 2022 legislative session in February.

Speaker of the House Matt Ritter of Hartford and Senate Speaker Pro Tem Martin M. Looney of New Haven then promised to raise the state income tax credit for the working poor to its highest level. in 11 years of history.

Connecticut’s earned income tax credit would increase 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 about $300 more to more than 185,000 households. To qualify for the EITC in 2021, a filer had to earn $57,414 or less.

The package is also expected to create a new child tax credit as part of state income tax.

Scanlon, who led that proposal, called it crucial to start reforming a state and municipal tax system that overburdens middle-income households.

The Guilford lawmaker said he would eventually like the state to provide a credit of $600 per child, up to a maximum of $1,800, but that relief would likely have to be phased in over several years.

The full relief program as envisioned would cost around $300 million a year.

Lamont warned that U.S. Treasury rules restrict the tax cuts states can offer in the next fiscal year if they accept federal pandemic assistance. Congress sent more than $3 billion through the American Rescue Plan Act directly to the Connecticut state government, and billions more were sent to municipalities and school districts.

Lamont estimates that these federal restrictions will not allow total state tax relief in the next budget to exceed $200 million.

The proposed income tax cut for Connecticut’s working poor would cost the state $42 million a year.

And Lamont has his own ideas for tax cuts that the committee should support this week.

Connecticut currently offers a $200 tax credit to middle-class households to offset the burden of property taxes, but since 2018 it has been limited to seniors or families with children. The governor’s plan would restore eligibility to all households within income limits and increase the credit to $300.

It was unclear late Monday how much the finance committee’s proposal would increase credit.

Lamont would also accelerate planned tax breaks for retirees and reward companies that help employees repay student loans.

The governor’s proposals, coupled with promised tax breaks for the poor, would eat away at all the wiggle room allowed for tax cuts in the next fiscal year under federal restrictions.

But Scanlon said Monday that while some relief needs to be postponed for a year or two, lawmakers are confident it will be “substantial.”

Scanlon and the other finance committee co-chair, Sen. John Fonfara, D-Hartford, said they hoped the tax package would have bipartisan support.

And while there may be GOP votes for tax cuts this week, Republicans will still be disappointed.

That’s because the Democratic-controlled committee chose to pass on their Republican colleagues’ tax cut proposals.

Senate Republicans wanted to roll back the state sales tax — for 2022 and possibly longer — from 6.35% to 5.99%, suspend the 1% surtax on prepared meals, and repeal the new highway use tax on large commercial trucks.

“We do our best to bring together our best bills so they benefit the most in the state of Connecticut – and sadly, this falls on deaf ears,” said Senator Henri Martin of Bristol. , ranked Senate Republican on the Finance Committee.

The House GOP, which also wanted to scrap the highway tax, proposed raising the property tax credit to $500 per household. The caucus also wanted to create a new income tax credit for renters and 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 was frustrating that the substantial relief offered by her caucus — and reflecting concepts endorsed by a think tank high-ranking progressive politics among Democrats – was not achieved. more consideration.

“It’s unusual for Connecticut Voices for Kids and Republicans to agree,” she said.

But Republicans might not be the only disappointed ones this week.

It was unclear late Monday whether the Appropriations Committee, which recommends the spending side of the budget, would accept another key relief proposal from Lamont: a motor vehicle tax freeze.

This issue is pending before the Appropriations Committee because car taxes are collected by towns and villages. Lamont wants to lower the statewide cap from 45 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 a year, sending it to municipalities to replace revenue they would lose due to a lower cap.

Appropriations committee co-chairs Rep. Toni E. Walker, D-New Haven, and Senator Cathy Osten, D-Sprague, would not discuss what new cap level their panel would support.

But both acknowledged that it would be difficult for the legislature to pass the governor’s comprehensive plan and not sacrifice several other spending priorities set by rank-and-file lawmakers.

The committee is trying to increase funding for a child care industry and public colleges and universities, both financially shaken by the coronavirus pandemic, Walker and Osten said.

Connecticut must also be ready to implement the comprehensive school choice plan it submitted in January to end a 33-year dispute over how to fix segregation in schools in Hartford and its suburbs. .

Lawmakers also fear a potential staffing crisis in state government, with veterans retiring in droves this spring – just before pension benefits were tightened in July under a 2017 agreement with unions.

“You can’t run government without people,” Walker said, adding that Lamont’s proposed budget in February for the fiscal year beginning July 1 did not include sufficient funds to fill vacancies. “We have a personnel crisis at the moment.”

“There were holes in the executive [Branch’s] budget,” Osten said, adding that the committee’s plan “is really a COVID relief budget. The aftermath of COVID exacerbated some of the issues that arose, but eventually came to a head. ”

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