Connecticut’s Budget Agreement Includes a $600 Million Tax Cut and Extends the State’s Gas Tax Holiday.

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Gov. Ned Lamont and legislative leaders have reached an agreement on a new $24 billion state budget that includes nearly $600 million in tax cuts, including up to $750 for families with children later this year, and an extended gasoline tax holiday that runs through December 1.

The compromise budget for the fiscal year beginning July 1 also freezes car taxes in nearly half of all communities and makes new investments in child care, mental health, other social services, and the state’s contracting watchdog.

However, while the governor and his Democratic colleagues in the legislature’s majority hailed the tax cuts as historic, more than half of the nearly $600 million in tax relief in the plan is guaranteed for only one year.

“We’ve got a budget on time with significant tax cuts and investments in critical social programs,” Lamont said at a press conference with legislative leaders at midday. “I believe you see a budget that will help those who are most in need.”

 

child tax credit

 

“I think there’s a lot to celebrate here,” said Senate President Pro Tem Martin M. Looney, D-New Haven, noting that lawmakers had to make tough budget cuts for much of the 2010s as the state struggled with deficits. However, now that the state is experiencing historic budget surpluses, “we were actually excited about this process, not dreading it.”

 

Tax breaks totaling nearly $600 million are included in the package.

With the state government flush with cash, with more than $7 billion in current and projected budget reserves, Democrats prioritized tax relief.

Individual filers earning up to $100,000 and couples earning up to $200,000 were eligible for a $250 per child credit for up to three children. Poor households with no income tax liability could still receive up to 70% of the credit refunded to them. The program as a whole would return an estimated $125 million to low- and middle-income families.

According to a source, lawmakers are considering sending some or all of this funding to eligible families later this year, rather than making them wait until next spring to file state income tax returns.

While the state government’s reserves are ample, skyrocketing inflation and more than two years of the coronavirus pandemic have taken a heavy toll on Connecticut households, according to Rep. Sean Scanlon, D-Guilford, co-chairman of the Finance Committee and the driving force behind the effort to create a child tax credit.

“We have the ability to say, ‘We hear you, Connecticut,'” Scanlon said, referring to the state’s robust budget reserves. “And this package satisfies that requirement.”

By increasing the property tax credit from $200 to $300 and restoring eligibility to households without children or seniors who lost their ability to claim the credit in 2018, nearly another $125 million in income tax cuts would go to the middle class.

Lamont, who spearheaded the push for the expansion of the property tax credit, also won a victory on municipal taxes on non-commercial vehicles.

The new budget reduces the statewide car tax cap from 45 mills to 32.46 mills. One mill raises one dollar for every $1,000 of assessed property value.

Only a few communities currently tax vehicles above 45 mills, but legislators said the new cap would provide total relief of about $100 million, spread across 75 of the state’s 169 cities and towns. The state would send affected towns $100 million to compensate for revenue that could not be collected.

Earlier this spring, Lamont and legislators from both parties agreed to suspend the 25-cent-per-gallon retail tax on gasoline from April to June. This new budget would extend the tax holiday until December 1, saving motorists an additional $150 million.

The House rejects a proposal to privatize tax collection.

Lamont and legislators are on the verge of reaching a new Connecticut budget agreement.

 

Other tax breaks included in the package are:

• Increasing the state’s Earned Income Tax Credit from 30 percent to 41.5 percent of the federal EITC for the 2022 tax year. This would provide approximately $42 million in total relief, or roughly $300 more per person to approximately 185,000 working poor households earning less than $58,000.

• Exempting all pension and annuity earnings from income taxation would save taxpayers $40 million per year.

• In addition, the state would spend $10 million on a new income tax credit to assist college students with loan debt.

Legislators are also considering using a portion of more than $400 million in unallocated federal pandemic relief to help reduce a $495 million debt in the state’s unemployment trust, but no decision has been made. Any debt not covered by the state must be repaid by Connecticut businesses, which will face additional assessments beginning this fall.

However, while Lamont and Democratic lawmakers emphasized the total relief, they did not spend as much time emphasizing that more than half of the total tax relief, more than $315 million, is only guaranteed for one year.

The child tax credit, EITC expansion, and gas tax holiday are all temporary measures.

 

EITC

 

Scanlon, who lobbied hard for a permanent child tax credit, believes the program will be popular and that lawmakers will find it difficult to repeal it in the future.

“I think this policy is transformational for families and kids in Connecticut, and I think it’s going to mean a lot to the parents of the 600,000 children” expected to benefit from the program, he said, adding that the federal income tax child credit already has a proven track record of lifting children out of poverty.

Republican legislators proposed some one-time relief as well, but House Minority Leader Vincent J. Candelora noted that the GOP went much deeper in terms of long-term tax cuts. Proposals included the first reduction in state income tax rates since the mid-1990s, annual rate adjustments to protect households from inflation, increasing the property tax credit to $500, and creating a new tax credit for renters.

“We also want to see some systemic change,” Candelora said, adding that while immediate relief for Connecticut households is critical, it must continue beyond this year in order for families to thrive.

“Many of these one-time giveaways do not necessarily stimulate economic recovery.”

“The state overtaxes its citizens.” Connecticut Democrats want the money to stay in Connecticut. That is not acceptable,” said Senate Minority Leader Kevin Kelly, R-Stratford. “Connecticut Democrats have the ability to alleviate the financial burden on our families.” The delayed and limited tax relief has left me disappointed and underwhelmed.”

 

New investments in child development and social services are being made.

However, House Speaker Matt Ritter, D-Hartford, stated that this budget is about more than just tax cuts. State government must be prepared to function in 2024 without the $3 billion in federal pandemic relief it has received in the last year, and lawmakers intend to maintain significant investments in health care and social programs in this new budget.

“This is about investing responsibly,” Ritter explained. “We are not foregoing fiscal discipline in order to make these investments.”

Legislators and Lamont both stated that the new budget would include significant new investments in child care and early childhood development programs.

While they did not provide specific figures, sources said the package would include approximately $80 million in the General Fund, supplemented by an additional $45 million drawn from this year’s surplus and unallocated federal pandemic relief.

Since the outbreak of the pandemic, state officials have expressed concern about the need to increase job training and assist more households in finding work. However, Rep. Toni E. Walker, D-New Haven, a longtime co-chairwoman of the Appropriations Committee, believes that job growth will be limited until the state addresses the coronavirus-ravaged child care industry.

“You can’t work if you don’t have money set aside for day care,” she explained.

The private, non-profit community organizations that provide the majority of state-sponsored social services also prevailed.

The new budget includes $72 million in support for the agencies, which serve clients with developmental disabilities, patients with mental illness and behavioral disorders, and those suffering from addiction. This includes $52 million in state funds and $20 million in federal pandemic relief.

The package also transfers roughly $20 million from this fiscal year’s historic, projected $4 billion surplus to assist the industry, which claims that state payments have failed to keep pace with inflation for more than 15 years, putting many providers in financial jeopardy and creating a severe staffing shortage.

 

With a small amount of funding, a contracting watchdog achieves great success.

Legislators also rejected Lamont’s proposal to increase staffing for the state auditor’s office rather than fully staffing the State Contracting Standards Board. Instead, the final budget proposal includes the $454,000 sought by the contracting board to fill five positions, as well as a full-time investigative staff for the first time in the agency’s 15-year history.

The board, which was established in 2007, technically has the authority to review Executive Branch agencies’ contracting processes to ensure they are transparent, cost-effective, and in accordance with the law. It also has the authority to halt any procurement effort that is deemed improper. The auditors have no authority to impose sanctions.

However, governors and legislatures have never provided the board with the necessary funding to hire an investigative staff.

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Sen. Cathy Osten, D-Sprague, the other Appropriations Committee co-chairwoman and a longtime supporter of fully funding the contracting watchdog, said Wednesday that new spending amounting to a tiny fraction of the $24.2 billion budget still has great value.

“In this budget, we funded small things that make a big difference to the residents of the state of Connecticut,” she added.

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