Lamont boosts 2020 state tax credit for working poor by $75M via executive order
Gov. Ned Lamont said Wednesday he is ordering the state Department of Revenue Services to raise the state’s 2020 Earned Income Tax Credit for lowand moderate-income workers retroactively, boosting the benefit from 23 percent of the federal credit to 41.5 percent.
The additional state tax refund will benefit 198,708 households that earned up to $56,844 in 2020 and filed for the EITC for 2020. The cost is $75 million, with the money coming from the first round of federal pandemic relief.
Lamont’s action was done without legislative approval. Changes in the EITC credit are typically adopted as part of the state budget — including a permanent increase to 30.5 percent of the federal benefit that was adopted earlier this year and is set to take effect in 2022.
Lamont’s one-time change is intended to provide economic support to workers and their families who were hurt by COVID-19 and its negative economic impacts.
The amount of each household’s enhanced credit varies based on a taxpayers’ income, marital status, and number of dependent children. Refunds are given in cash if a taxpayer paid a smaller amount in state or federal taxes.
A single parent of two at the federal poverty level, for example, who received a $1,246 state credit in the spring will now receive an additional $1,002 in a check the state will send out soon. As a result, that single parent would receive a total state credit of $2,248 — in addition to the federal benefit of $5,417 he or she already received.
Money for the one-time credit bump-up is the last of the state’s $1.38 billion Coronavirus Relief Fund allotment from 2020, from the first federal CARES Act. Under federal rules, it had to be spent by Friday, the end of 2021. The state Department of Revenue Services expects to issue the checks by the end of February.
State officials had previously spent the bulk of the Coronavirus Relief Fund to purchase personal protection equipment, expand access to testing, and support schools, small businesses, municipalities and other groups dealing with COVID-19. A later allocation from March of this year gives the state $2.8 billion.
Lamont said in a written statement that enhancing the 2020 Connecticut Earned Income Tax Credit “provides direct relief to workers doing their best to provide for their families while confronting pandemic-related costs from masks and tests to childcare and internet access.”
“The recent bipartisan budget increased this credit going forward because numerous studies show it’s one of the best anti-poverty tools we have,” the governor said. “The EITC encourages work, boosts economic stability, and uplifts generations to come. Ultimately, these tax credits improve entire communities because these dollars are being invested right back into our local economy.”
Melissa McCaw, the state’s Office of Policy and Management Secretary, said strong fiscal stewardship is allowing state officials to “leverage remaining Coronavirus Relief Funds to put more money in the pockets of those who have been deeply impacted by the pandemic and could really use our support.”
“The EITC is one of the most effective programs for getting support to hardworking families who have experienced tremendous economic uncertainty, many of whom have done the work that kept our state and its economy churning throughout this public health crisis,” McCaw said.
House Minority Leader Vin Candelora, R-North Branford, said the legislature’s GOP leadership found out about Lamont’s plan five minutes before the announcement was made.
“I’m a little shocked the Governor would do this without consulting our legislative leaders,” Candelora said. “This is a blatant abuse of power; he’s changing tax policy and that’s supposed to be done legislatively. This is blatantly political; it’s the Governor beginning his re-election campaign.”
Candelora said use of tax credits is something that has traditionally “been supported by both sides of aisle.”
But he said, “There's a lot of other priorities out there that need to be addressed . ... This money could be focused on those other critical needs.”
Lamont credited Senate President Pro Tempore Martin Looney, D-New Haven, for leading the fight to create and increase the Connecticut Earned Income Tax Credit as a way of making the state’s tax system more progressive. It was created in 2011 and has had varying rates over the last decade, ranging from 30 percent in 2011 and 2012 to 23 percent from 2017 to 2020.
“The governor’s expansion of the EITC will result in lifting more working people out of poverty and putting more money back into our local and state economies,” Looney said in the governor’s release.
The increase to 30.5 percent adopted by the General Assembly and signed by Lamont brought Connecticut’s rate higher than that of Massachusetts and New York, which have a rate at 30 percent. The 30.5 percent increase had been scheduled to go into effect in 2022, according to Candelora.
Democrats on the taxwriting Finance Committee of the General Assembly had proposed an increase to 40 percent. Rep. Sean Scanlon, D-Guilford, cochairman of the Finance Committee, said that while the increase to 41.5 percent “was ultimately the Governor’s decision, I’m grateful that he did it and that ultimately he made te right decision.”
“Let’s remember that this is not the end of the story, a one-time thing,” Scanlon said. “This is a number that gets adjusted all the time and I have every confidence the legislature will take a further look at again in the coming year.”
Brian Marks, senior lecturer in the economics and business analytics department at the University of New Haven, said any increase in tax credits needs to be viewed “within the context of individuals and families being confronted with price increases in energy and food.”