The legislature鈥檚 Finance Committee agreed to explore income tax cuts aimed at the middle class, the working poor, renters and businesses on Wednesday, but the Democrat-controlled panel also renewed its push to raise more from 海角换妻鈥檚 wealthiest households.
The move, which includes a mansion property tax to help fund urban school desegregation, will again put the committee at odds with Gov. Ned Lamont.
鈥淚 believe we can get to a bipartisan tax [relief] package this year. If we don鈥檛, I think we鈥檝e failed in one of our biggest charges this session,鈥� said Rep. Sean Scanlon, D-Guilford, co-chairman of the finance panel.
Lamont and top lawmakers from both parties have pressed hard for tax cuts this winter, noting that while 海角换妻鈥檚 economy remains fragile from the coronavirus pandemic, state government coffers have swollen to record proportions.
But there also are some sharply different philosophies at the Capitol over how to provide that relief 鈥� and whether more from the rich is needed to ensure thattax cuts for others are sustainable.
鈥淚t鈥檚 going to take compromise from everybody,鈥� Scanlon added, 鈥渋ncluding the governor.鈥�
The Finance Committee, which has until April 7 to complete its recommendations this session, is feeling pressure from all groups to cut taxes. The budget reserve, which holds a record-setting $3.1 billion, is at its legal maximum equal to 15% of annual operating costs.
The current fiscal year鈥檚 budget also is on pace to make history and finish with about $2.5 billion left over.
But with 海角换妻 still down more than 70,000 jobs since March 2020, when the pandemic began, many lawmakers say relief needs to be targeted to those most in need.
Focusing on income tax relief
Not surprisingly, the Finance Committee is expected to focus much of its proposals on the income tax, by far the state鈥檚 largest revenue engine.
The committee agreed Wednesday to raise a 鈥渃oncept bill鈥� 鈥� carrying a title but no details yet 鈥� on the income tax鈥檚 property tax credit.
Currently, the credit provides $53 million in relief, chiefly to middle-income households with seniors or children, covering up to $200 of their municipal property tax burdens.
But the credit is just a shell of its former self.
In 2010 it stood at $500, was available to income-eligible households without children or seniors and was worth .
Gov. Ned Lamont has proposed boosting it to $300. The House Republican caucus wants to go back to $500. Both would remove the requirements that the households contain seniors or kids.
The finance panel won鈥檛 settle on any recommendation for at least a month, but it did agree to schedule a public hearing on a bill to raise the credit to $400 and to eliminate the other restrictions.
Scanlon and the committee鈥檚 other co-chairman, Sen. John Fonfara, D-Hartford, said the group also wants to explore possibly creating some form of credit for low- and middle-income renters in 海角换妻. Research shows many landlords build the cost of their property tax bills into the fees charged to their tenants.
The committee also agreed to explore boosting the Earned Income Tax Credit, a state income tax break for working poor households, from 30% to 40% of the federal EITC. This would add roughly another $40 million to more than 190,000 families that earn less than $57,000 per year 鈥� an average boost of about $250 per household.
The third major income tax cut involves the new child tax credit proposed by Scanlon, who is recommending up to $600 per child or a maximum of $1,800 per household. Nonpartisan analysts said last year when Scanlon raised the concept that it would cost the state about $300 million per year.
To combat rising gasoline prices, the committee will hold a public hearing this spring on a bill proposed by Senate President Pro Tem Martin M. Looney, D-New Haven, to credit all working households, regardless of their income limits, with $50.
鈥淓veryone is feeling the pinch from higher gas prices,鈥� Looney said Wednesday. 鈥淵ou don鈥檛 have to be really poor to feel the squeeze right now,鈥� he said.
If majority Democrats in the House and Senate hope to get Republican votes on a tax package, they might consider the Senate GOP鈥檚 proposal to reduce the sales tax rate, at least for 2022, from 6.35% to 5.99%. The caucus also wants to suspend the 1% surcharge on restaurant food and other prepared meals for the calendar year, arguing broad-based relief is the best way to help jump-start the economy.
The Finance Committee raised a bill to implement the Senate Republicans鈥� proposal. But they鈥檙e also exploring some other tax proposals that likely would drive Senate and House Republicans away, as well as Lamont.
Though the state鈥檚 coffers are flush right now, that鈥檚 due in part to billions of dollars in emergency federal pandemic relief that will expire in 2024. There鈥檚 also no guarantee a stock market that was largely robust until the start of 2022 鈥� and drove much of state government鈥檚 revenue growth over the past four years 鈥� won鈥檛 plunge at some point.
During the Great Recession of 2007-09 and the eight years of sluggish recovery that followed, legislatures largely whittled away at state services, municipal aid and tax credits for the middle class and the poor to help keep budgets in balance.
Tax fairness debate heating up again
To ensure that any tax relief offered this year is sustainable 鈥� and to recession-proof core services and programs 鈥� progressive Democratic legislators on the Finance Committee have proposed raising taxes on the wealthiest households.
The panel voted Wednesday to hold a public hearing on Looney鈥檚 proposal for statewide property tax on homes with assessed values at $1.2 million or greater.
And since property tax assessments represent 70% of market value, this involves homes priced at more than $1.7 million.
This mansion tax could generate as much as $86 million. Looney says the revenue should be used to fund the school desegregation initiatives the state recently endorsed to settle the landmark Sheff v. O鈥橬eill case and also to relieve local school districts of surging special education costs.
The Finance Committee also will hold a hearing on a plan from Looney for a 1% income tax surcharge on the capital gains earnings on the state鈥檚 wealthiest households. This involves couples earning more than $1 million annually and singles topping $500,000. It would raise about $130 million per year.
But Lamont, a fiscally moderate to conservative Democrat from Greenwich, has said repeatedly that he fears any tax hikes now would weaken the state鈥檚 economic recovery. Lamont also has said he believes state tax hikes aimed at the wealthy would prompt them to flee the state.
Lamont鈥檚 communications director, Max Reiss, said Wednesday the governor is focused on economic growth, a structurally balanced budget and keeping 海角换妻 affordable.
鈥淭he governor鈥檚 views have remained consistent on some of the issues raised today that we have seen previously, however, his administration is reviewing all proposals, as we do with all legislation,鈥� Reiss added.
But Lamont isn鈥檛 the only one likely to balk at these proposed tax hikes.
Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance panel, said the GOP is very interested in providing tax relief but not in increasing taxes on anyone.
鈥淚f a significant number of those [tax increase proposals] are included, I think the chances of having a bipartisan revenue plan are slim and none,鈥� she said, 鈥渁nd slim has left town.鈥�
Looney, who had offered a statewide property tax and a capital gains surcharge last year as well, noted that both proposals were tempered this year in hopes of reaching a compromise.
The property tax offered in 2021 would have been imposed on all homes with market values around $430,000 or greater. And the capital gains surcharge was 2%, not 1%.
And Sen. John Fonfara, D-Hartford, the other co-chairman of the Finance Committee, said those who believe the pandemic has worsened 海角换妻鈥檚 longstanding gaps in wealth, education, health care and economic opportunity are as passionate as those who oppose higher taxes on the rich.
Lamont blocked many of these tax hikes in 2021 but wasn鈥檛 running for re-election then, as he is now. And the governor鈥檚 latest proposal to cut income taxes on the middle class via the property tax credit is needed to fulfill an overdue pledge he made in his 2018 campaign.
鈥淚鈥檓 hopeful that, unlike previous years, there is an appreciation for a [negotiation] process that is mutual,鈥� Fonfara added. 鈥淭hat hasn鈥檛 been the case because there hasn鈥檛 been a need鈥� in the past.