Over the past two years, the fight for a new state income tax credit for families with children has run into an affordability roadblock.
But Connecticut’s highest-ranking state senator offered an alternate route this week to make this relief a reality, adding that the coronavirus pandemic, high inflation and longstanding income and wealth inequality issues have left many working families in financial crisis.
“I think it’s essential we move toward a child tax credit,” Senate President Pro Tem Martin M. Looney, D-New Haven, told the CT Mirror this week, predicting the program would be a massive hit with low- and middle-income families. “Once it’s on the books, it will be politically impossible to repeal.”
As the state enjoyed multibillion-dollar budget surpluses, many legislators and policy groups have endorsed a $600 per child credit — up to $1,800 per household — during the 2022 and 2023 General Assembly sessions. Nonpartisan analysts estimate this proposal would deliver about $300 million per year to families.Looney: Phasing in a child tax credit will make it last
Gov. Ned Lamont has been warning lawmakers that Connecticut won’t enjoy multibillion-dollar surpluses forever. The numbers — though still rosy — technically are trending downward as the global economic picture remains gloomy.
The budget for the fiscal year that began July 1 is projected to close next June 30 almost $1.1 billion in the black — equal to one-third of the entire $3.3 billion rainy day fund.
Still, last fiscal year wrapped with more than $1.9 billion left over, the second-largest cushion in state history. It was topped only by the 2021-22 fiscal year, which closed with a $4.3 billion windfall that represented one-fifth of the entire General Fund.
For those worried about the economic future, Looney will again support raising either the top marginal income tax rate or placing a surcharge on capital gains and other investment earnings. Both would apply only to Connecticut’s wealthiest households. The state then could use the proceeds from that increase to fund a child tax credit for low- and middle-income households.
Last year, Looney proposed raising the top marginal rates and adding a capital gains surcharge for couples earning more than $500,000 per year and for singles topping $250,000.
But Lamont, other moderate Democrats and many Republicans in the legislature have opposed financing tax relief for the poor and middle class with hikes on the wealthy, arguing it would prompt the latter to flee the state.
Recognizing this approach likely would draw the same opposition, Looney said he also would pitch a multi-year phase-in, probably stretched over five years, to cushion the state budget from the fiscal impact of the child tax credit.
Though full details won’t be resolved until the regular 2024 session starts in February, the New Haven lawmaker said he likely would recommend starting the credit at $200 per child in the first year, gradually increasing it $100 per year until it reaches $600.Affordability sank child tax credit proposal in recent years
Affordability was a stumbling block for the child tax credit in each of the past two years. In 2021, lawmakers and Lamont focused on expanding another income tax credit that offsets a portion of local property tax expenses, approving more than $110 million in annual relief with this effort. Lamont, who was seeking re-election in 2022, had proposed in his 2018 race to expand the property tax credit by 2021 and was already overdue.
The Lamont and lawmakers also prioritized a gasoline tax holiday that ran from April 2022 until last May and delivered an estimated $330 million in relief to motorists.
Officials were reluctant to commit to an ongoing child tax credit given the other relief. But they did approve a trial one-time income tax rebate of $250 per child in 2022, which gave advocates hope that an ongoing credit would be enacted this spring.
But Lamont and a majority of legislators — both his fellow Democrats and Republicans — gave top priority this year to the first reduction in state income tax rates since the mid-1990s.
The rate changes alone will return close to $400 million annually to taxpayers starting with returns filed in the spring of 2025. Expanded credits and exemptions for working poor families and retirees will deliver nearly $80 million more in annual relief.Ritter: ‘It’s important to be a family-friendly state’
House Speaker Matt Ritter, D-Hartford, another advocate for the child tax credit, said a phased approach might be the best way to compromise with those who worry the state has approved too much tax relief over the past two years.
“It’s important to be a family-friendly state,” Ritter said, adding that the high cost of raising a family in Connecticut is a concern throughout the Capitol.
Starting the credit at $200 would cut the $300-million-per-year program cost to roughly $100 million. Each year that the credit grows another $100 would add roughly $50 million more to the annual cost, allowing the budget to absorb it in smaller bites.
“We want families to be able to rely on things, build [household] budgets around these credits,” Ritter said.
The speaker was disappointed last spring when the Democratic-controlled House did not vote on a bill to expand the state’s paid sick leave program, a measure that already had cleared the Senate.
But he said support for the bill was growing in the House, adding he hopes that this measure and the child tax credit could be the “twin pillars” of a legislative agenda centered on supporting Connecticut families.
Recognizing Connecticut’s high cost hits the state’s poorest families hardest, Looney also supports another key component of the $600-per-child credit plan originally developed by state Comptroller Sean Scanlon, who was a legislator in 2021 when it was first introduced.
Scanlon recommended 70% of the credit, up to $420 per child, would be refundable. That means that even if a household earns so little it has no state tax liability to apply the credit to, it still could have $420 per child added to its refund.
Looney said it would be essential to have at least 70% of the credit refundable in his plan as well, and members of the legislature’s Black and Hispanic caucuses also strongly support a refundable child tax credit.
“I suspect there’s widespread support in a lot of the legislature to do it,” Ritter said.
Lamont was noncommittal this week, saying through a spokesman that the child tax credit “remains a potential item for consideration as we craft our proposed budget adjustments.”
Republican legislators have been more supportive of broader-based relief, such as rate cuts that apply to all households. The GOP last year supported a deduction rather than a credit, which would offer far less relief per household.
This story originally appeared on the website of The Connecticut Mirror, www.ctmirror.org.