Lamont announces cut in state income tax

Largest reduction in Connecticut history; first cut since 1996

EAST HARTFORD — With the state in its best financial condition in years, Gov. Ned Lamont called Monday for the largest cut in the state income tax in

Connecticut history.

Couples filing jointly would save a maximum of nearly $600 per year, and single filers would save a maximum of nearly $300 per year, officials said. The cuts would reach 63% of income tax filers and would start with the new tax year on January 1, 2024.

“This is an important announcement,’’ Lamont told supporters outside the temporary town hall in East Hartford as renovations continue at town hall. “This is the biggest tax cut since the dawn of the income tax in the state of Connecticut.’’

If the measure is approved by the Democratic-controlled legislature in the coming months, a family of four with two children earning under $50,000 per year and qualifying for the earned income tax credit would pay no state income tax, he said. Families earning under $40,000 can receive a rebate.

The cuts will be accomplished by reducing the current 5% rate to 4.5%, which represents a 10% rate cut. The current 3% rate would be reduced to 2%, which amounts to a 33% cut in taxes paid. The rate cuts will show up automatically in paychecks, rather than needing to fill out any forms or applications.

“It’s a long time coming,’’ Lamont told supporters. “I wanted to make sure this is something we can do, not just for the next year or two . ... I think people want consistency and certainty to know this is a tax cut that’s built to last.’’

A booming state surplus in recent years has sharply changed the state’s finances and made the tax cut and other proposals possible. The state has benefitted from billions of dollars in federal funding related to the coronavirus pandemic. In addition, the state

generated surpluses during the record-breaking year for Wall Street in 2021, even though many stocks fell in 2022. The bulk of the capital gains taxes, which are due quarterly for the wealthiest filers, are paid by millionaires and billionaires in Fairfield County.

Of 1.7 million tax filers in Connecticut, 1.1 million will receive relief — representing 63% of all filers.

“I want to cut taxes for the middle class,” Lamont said. “When I took office four years ago, the state was operating under a $3.7 billion deficit and analysts were projecting more deficits for many years to come. For the sake of our economic growth, I made it a top priority of my administration to turn that instability around.’’

The plan would permanently lower the rates on the personal income tax and would save taxpayers $440 million annually, according to the administration.

Based on the intricacies of the tax code, families earning $100,000 per year would receive a tax cut of $594, and single filers earning $65,000 would receive $290 — the highest benefits under the plan. Higher earners would still receive some benefits before the tax cut is completely phased out at $345,000 per year for individuals and $690,000 for couples, Lamont’s office said.

Under the plan, joint filers earning $275,000 per year would receive a tax cut of $500, while couples earning $575,000 per year would receive $200.

Both Republicans and Democrats have hailed the idea of middle-class tax cuts, but legislators said Monday that they need to analyze all of the puzzle pieces that can fit into the state budget.

“I’m happy that Gov. Lamont is committed to tax cuts for the middle class — it’s a priority for members of our caucus,’’ said House Speaker Matt Ritter of Hartford. “However, the governor’s address this week is the first step in a monthslong process of crafting a two-year state budget. Legislators will need to see the entire picture and digest the details before we can fairly analyze each proposal.”

After public hearings and committee votes, no final deals on taxes are expected until near the end of the legislative session in early June.

While middle-class taxpayers have complained repeatedly about their level of taxation, the majority of taxes in Connecticut are paid by the wealthy. Lamont is also calling this year for cuts in the passthrough entity tax, which was created in 2018 as a workaround for taxpayers snagged by the maximum deduction of $10,000 in their state and local taxes, known as SALT.

The pass-through entity tax now ranks as the third-highest tax generator in Connecticut at a projected $2 billion for the current fiscal year — behind only the state income tax at $11.8 billion and the state sales tax at $5 billion.

While small retail shops and struggling businesses operate under limited liability companies that qualify for the pass-through entity tax, the lion’s share of the money is paid by wealthy small business owners. State statistics show that 80% of the tax is paid by entities that are earning more than $500,000 per year. The entities might have two or 10 partners, for example.

In addition, nearly half the businesses filing under that category in 2019 owed no tax at all, according to state records.

Lamont has already proposed increasing the Earned Income Tax Credit, aimed at families earning between $46,500 and $64,000. The increase would give an additional $211 to the average household, but could give a couple with two children an extra $585, according to the administration.

Lamont’s supporters burst out into applause when he made the announcement Monday at an outdoor press conference.

“Not bad. What do you think, Boughton?’’ Lamont asked his tax commissioner.

“Love it,’’ Boughton responded.

Stepping later to the podium, Boughton said, “This clearly is a historic day.’’

The proposal by Lamont would mark the first reduction in the rate since 1996. In that year, the legislature created the 3% rate, which was a reduction from the previous 4.5% rate. But the rates and credits were also baked into the income tax tables, meaning that low-income couples earning less than $24,000 per year never paid the 4.5% rate.

Instead, they owed no income tax at all at the time.

Lamont will present his full budget to the General Assembly on Wednesday at noon.

“The fact that we’re eliminating the income tax for families earning up to $50,000, I think, is transformative,’’ Lamont said. “It’s another reason to stay in Connecticut.’’