In spending plan, a shower of tax cuts
Republicans say $24.2B package ‘not a bipartisan budget’
HARTFORD — From gasoline to residential property to cars in 75 communities, Connecticut residents will be showered with tax cuts in an election year as the state’s budget surplus keeps climbing.
Lawmakers were still debating Monday night on the $24.2 billion annual state budget that includes a series of tax and spending proposals that are being applauded by Democrats and derided by some Republicans.
The massive, 673-page package includes a $250-per-child tax credit for the first time in Connecticut history that will help struggling families pay for diapers, day care, and other necessary items. But Republicans complained that the tax credit will last for only one year because lawmakers are concerned about a projected budget deficit as soon as the 2024 fiscal year after billions in federal coronavirus stimulus money run out.
The tax cuts total about $600 million in a budget for the next fiscal year in which spending will increase by 2.5% over the current budget.
In a move closely watched by senior citizens and others, withdrawals from 401(k) plans will be free from the Connecticut personal income tax starting in the current tax year, officials said. Withdrawals from IRAS will be phased out at 25% each year for four years, starting in 2023, according to the governor’s budget office. The changes would not affect any of the federal rules, and withdrawals would still be subject to federal income taxes.
The legislature is also phasing out state taxes on pensions and annuities in a move with bipartisan support.
Surrounded by elderly residents who were wearing their trademark red T shirts Monday at the state Capitol, Gov. Ned Lamont turned to the crowd and said, “AARP — you don’t have to move to Delray! You can stay right here in Connecticut.’’
Single filers with a federal adjusted gross income of more than $75,000 per year and couples with income above $100,000 per year will not receive any state tax breaks on the withdrawals. Only those below those income levels will be eligible.
The Lamont administration said the package represented the largest tax cut in state history, rivalling a 1995 tax cut by then-republican Gov. John G. Rowland when adjusted for inflation.
While the gasoline tax will remain cut by 25 cents per gallon for another seven months, Lamont said he purposely avoided reducing the diesel tax that is used in large volumes by trucks.
“I’ll tell you why. I like to cut taxes that Connecticut people pay, and the diesel tax is overwhelmingly paid by truckers - most of which are coming from out of state, driving through our state, and heading on down to Florida,’’ Lamont said when asked by The Courant. “That was not a priority for me.’’
House Speaker Matt Ritter of Hartford said the tax cuts are possible due to the quickly increasing state budget surplus. He predicted widespread Democratic support but was unsure about Republicans.
“I guess you could say you didn’t do enough, but at some point, that’s a hard argument,’’ Ritter told reporters. “This is an easy budget to vote for.’’
But House Republican leader Vincent Candelora of North Haven said Republicans are concerned about spending increases and one-time tax cuts.
“While we have historic surpluses, we do have deficits on the horizon,’’ Candelora said outside the House chamber. “This was an opportunity to make systemic change to our tax structure. I would have liked to have seen that systemic change. We could have reduced the income tax on our residents and make it more affordable. There is just a lot of one-time spending, one-time tax breaks that is disappointing.’’
Republicans had pushed for reducing the state income tax from 5% to 4% for single-filers earning less than $75,000 per year and couples earning less than $175,000 per year.
“If you’re looking at the election cycle for mailers against our members, yeah, it might be difficult,’’ Candelora said, referring to votes against tax cuts. “We don’t see cuts to the diesel tax, the cuts to the sales tax. The short-term tax cuts that residents need while we’re going into high inflation. Income tax reductions that we don’t see in this budget. All we have is the one-time child tax credit that disappears after one year. That’s not systemic change . .... For me, this is a very underwhelming budget.’’
Candelora said flatly that Republicans had no input into the Democratic-written budget and were completely frozen out of the process.
“This is not a bipartisan budget,’’ Candelora said. “There was no conversation with our side of the aisle, and the product shows that.’’
But Lamont’s chief spokesman, Max Reiss, said Republicans could be taking a chance by voting against the proposal.
“If they’re going to vote against one of the biggest tax cuts in Connecticut history, good luck and God bless them,’’ Reiss said.
Tax cuts
The tax cuts include increasing the property tax credit to a maximum of $300 per tax filer, up from the current $200. The credit is
effective for the 2022 calendar year and can be received when residents file their taxes before April 15, 2023.
The suspension of the state’s 25-centsper-gallon gasoline tax will be extended until expiring on December 1.
Car taxes would be reduced for about 75 of the state’s 169 municipalities. The biggest cuts would be for communities with the highest mill rates, while low-tax towns like Greenwich, New Canaan, Darien, Westport, Essex, Kent, Fairfield, Farmington, Madison, and Old Saybrook would receive no relief at all.
The child tax credit would be $250 per child for a maximum of three children - meaning a reduction of $750 for the year from the state income tax. The credit will help 600,000 children who are currently claimed as dependents on state tax returns. Single parents earning up to $100,000 and couples earning up to $200,000 per year will be eligible for the credit, which lasts for only one year.
The state’s earned income tax credit will remain at its current level of 41.5%, which is far beyond the historical levels since the Connecticut credit was created in 2011. The credit will help an estimated 200,000 taxpayers statewide.
With tax collections exploding, the state will now place an additional $3.5 billion into the rainy day fund, far beyond last year’s total pension contribution of $1.6 billion. The $45.5 billion pension fund has been underfunded because legislators and governors failed for decades to place the minimum contributions into the fund.
“There’s a lot to like in terms of this tax package, but I remain disappointed,’’ said Rep. Holly Cheeseman, the ranking House Republican on the tax-writing finance committee. “We were never included in the room . ... I know we can do better . ... The ball was dropped. It wasn’t even punted.’’
Not everyone was happy with the budget. “It is deeply disappointing that the final state budget agreement does not include any increase in funding for the state’s five Independent Living Centers, despite the budget supporting a wide range of other community-based nonprofits,’’ said Sharon Heddle, chairwoman of the Connecticut Association of Independent Living Centers. “Despite increases in need year after year, our funding has remained stagnant since the Centers were established in 1987. Funding at $766,000 per year for all five Centers limits our ability to serve the community and costs the state millions in far more expensive residential and emergency services.’’
On the spending side, the package includes money for education, teacher training, senior centers, Alzheimer’s disease programs, neighborhood community centers, and training for engineers in the state transportation department. The budget also provides $630 million to help private providers who hold state contracts, more than $158 million for child care, an additional $40 million for the unemployment insurance trust fund, and 24-hour, mobile psychiatric units to help with the growing problem of mental health.
The budget includes money for future pay raises for legislators starting next year, but that increase is subject to a separate vote by lawmakers who have been reluctant to award pay hikes for the past 21 years.