State Rep. Scanlon launches tax fairness debate with proposed $450M break for poor, middle class families

Keith Phaneuf :: CT Mirror

Rep. Sean Scanlon, D-Guilford, discusses state finances during a November press conference outside the Capitol.

{Updated at 5:15 p.m. with comments from Gov. Ned Lamont}

Low- and middle-income families with children would receive their largest state income tax break in nearly a decade under a new proposal to be unveiled Tuesday by the new co-chairman of the legislature’s tax-writing panel.

The new child tax credit proposed by Rep. Sean Scanlon, D-Guilford, would pump between $150 and $450 into households earning about $203,000 or less during its first year, depending on the number of children each family has.

It would be gradually increased over the next three years, sending between $600 and $1,800 into households from the same income group once fully implemented in the fourth year.

Patterned after the federal child tax credit, the state program also would be available to households earning between about $203,000 and $682,000, though their relief would be reduced on a sliding scale proportional to income.

“The cost of raising children in Connecticut is growing, and it’s growing at a time that, historically, doesn’t have much corresponding wage growth,” said Scanlon, who began his first term earlier this month as co-chair of the Finance, Revenue and Bonding Committee.

“The tax burden already is disproportionately weighted against people who are in the middle class,” Scanlon added, and said he fears Connecticut’s state and municipal tax system discourages young couples from raising a family here. “Now combine that with the increasingly proposition of raising a child.”

Connecticut’s income tax began in 1991 as a flat levy, with most income taxed at 4.5%, but over time evolved into seven rates ranging from 3 to 6.99%.

Critics note that key neighboring states like New York and New Jersey tax top earners at higher rates: 8.82% and 10.75%, respectively.

Relief for Connecticut’s middle class had been centered for years on another credit — one which reimbursed households for a portion of their local property tax payments. Launched in 1996 at $100 per eligible household, it grew steadily to $500 by 2006.

But from 2011 onward, state officials steadily whittled away at middle-class tax relief to close one budget deficit after another. The property tax credit fell from $500 to $200, it was limited only to seniors or to households with children, and income eligibility guidelines were tightened.

The program that provided $365 million per year in middle-class tax relief one decade ago now offers $63 million annually.

A December 2014 state analysis that studied how tax burdens can easily be shifted — such as a landlord building property tax expenses into the rent charged to tenants — found households making less than $48,000 annually effectively spent almost 24% of their earnings on state and municipal taxes. By comparison, a household earning $200,000 was paying 10.5% while one earning slightly more than $2 million was paying 6.5%.

Connecticut Voices for Children, a New Haven-based policy think-tank and child advocacy group, proposed a child tax credit in December as part of a larger tax overhaul designed to shift up to $1.4 billion in annual state and municipal tax burdens from Connecticut’s poor and middle-income households onto its wealthiest.

Scanlon said he wanted to aim for more modest yet still significant relief in hopes of passing something into law this year.

His proposal still must be reviewed by the legislature’s nonpartisan Office of Fiscal Analysis, but the Guilford lawmaker estimates the new child care credit would cost the state $112 million in its first year, $225 million in its second, $337 million in the third and nearly $450 million once fully implemented.

That still could pose a challenge for the new, two-year state budget.

Despite another increase in projected revenues announced Friday for the coming biennial budget, analysts still warn that finances, unless adjusted, could run roughly $1.2 billion in deficit in the first year and $1.3 billion in the red in the second.

Gov. Ned Lamont and the legislature can draw on a record-setting $3.1 billion rainy-day fund to cover that shortfall, and the governor also has expressed optimism that President-elect Joe Biden’s new administration also will increase financial aid to states struggling with the economic chaos caused by the coronavirus pandemic.

Still, Connecticut also has more than $90 billion in long-term pension, retirement health care and bonded debt, and Scanlon said it might not be possible to provide — and sustain — this middle class tax relief without raising revenue from some other source.

If it comes to that, he said, the best option would be to increase taxes on Connecticut’s wealthiest households.

“The middle class are not going to be asked to pay for their own tax cut here,” Scanlon said.

That could spark conflict with Lamont, who consistently has opposed boosting state taxes on the rich, arguing it would prompt them to flee Connecticut. The governor’s budget office did not comment on Scanlon’s proposal.

When asked about the proposal Tuesday afternoon, Lamont said he would prefer legislators hold off on Scanlon’s bill right now to wait and see what federal income tax relief might be coming. Biden has announced an agenda that includes expanding federal child and earned income tax credits to provide relief to poor and middle-income households.

“I’m the guy that’s got to pay for things,” Lamont said. “I’m the guy that’s got to keep the budget in balance” in Connecticut.

But Scanlon said he remains optimistic about reaching a compromise, predicting the plan would draw strong backing in the legislature — and not just from his fellow Democrats.

“I think this idea has broad-based support, not only from my side of the aisle but from the other side,” he added. “And if budgets are a reflection of our values and we can’t find the money to do something we all think is an important value, then shame on us.”