How one small detail in the proposed child tax credit reveals the political balancing act over tax relief
A proposal to deliver state tax relief to Connecticut’s working poor and middle class is testing state officials as they balance issues of fairness, longstanding racial inequities and political reality.
Not long after House Democratic leaders announced a scaled-back, more affordable child tax credit, University of Connecticut economist Fred Carstensen noted that some of the changes would come largely at the expense of the poor.
But another advocate for the credit said that Connecticut currently does too little to assist struggling, working class households and can’t miss this opportunity to help lift them out of poverty.
“This is tinged with both race and class,” said Carstensen, who heads the Connecticut Center for Economic Analysis. “This is saying lower-income people of color, and lower-income people who are white, don’t deserve the full benefit.”
The UConn economist was referring to the $600-per-child credit that Rep. Sean Scanlon, D-Guilford, proposed to ease a combined state-and-municipal tax system that leans heavily — according to at least one analysis — on low- and middle-income families.
Scanlon, who co-chairs the Finance, Revenue and Bonding Committee, originally envisioned making the credit available to households making as much as $682,000 per year. But after concerns were raised about the cost, he agreed to tighten things up. The credit would begin to phase out for couples earning more than $200,000 per year and would disappear entirely after $210,000.
But there also had been discussions about making the new child tax credit fully refundable.
Credits normally are used only to reduce the amount of taxes owed. Once the tax liability reaches zero, in the usual scenario, the credit cannot be converted into a refund.
That’s not the case, though, with a refundable credit. Any remaining value after the credit has been used to cover taxes owed is returned to the filer as a refund.
Scanlon and House Speaker Matt Ritter, D-Hartford, announced last week that the child tax credit would be 70% refundable.
Carstensen noted that a middle-class family that owes thousands of dollars in taxes annually would benefit from the entire $600-per-child credit. But many poor households owe little or no state income taxes, and they would, at most, get $420 per child — 70% of the full $600.
And given that minorities account for a disproportionately larger share of Connecticut’s low-income households, a bill touted as a means to achieve greater tax fairness, Carstensen said, was faltering on its mission.
But Scanlon countered that things aren’t that simple.
“Unlike the federal government, where they can just effectively print money and rack up trillions of dollars in debt, we have to live within our means,” he said.
Scanlon also said the child tax credit is part of a larger program the finance committee is working on that’s committed to delivering tax relief to low- and middle-income households “in a significant and meaningful way.”
The Guilford lawmaker added that Carstensen and other critics should judge the budget the Democrat-controlled legislature expects to adopt later this spring holistically. “There are other provisions,” he said, adding that, when combined with the child tax credit, “will meet the moment. We’re being conscious of the fact that most taxpayers have had a tough year.”
Scanlon didn’t discuss specifics about other tax proposals committee leaders have had about the tax package they will recommend this spring. But several high-ranking Democratic legislators, including Senate President Pro Tem Martin M. Looney of New Haven, have said Connecticut must respond to the pandemic by bolstering the Earned Income Tax Credit, a state income tax break aimed specifically at the working poor.
The state EITC is equal to 23% of the federal income tax credit of the same name and currently sends a total of $101 million to approximately 191,600 working poor households, according to the 2020 Connecticut Tax Expenditure Report. The credit, which is fully refundable, is worth an average of $525 per household.
And while the program technically is designed to help these families build at least a minimal savings — and thereby reduce their need for public assistance — advocates say the credit is too small. Most recipients must spend the entire refund just to cover grocery, utility and other routine expenses.
Connecticut Voices for Children, a New Haven-based policy group that has spearheaded for the push for state tax reform in recent years, cautioned Wednesday against focusing exclusively on one solution to poverty.
“I think it’s important to have a diverse range of credits,” said Emily Byrne, executive director of Connecticut Voices, which also has pushed for greater state investments in health care, education and municipal aid.
A 2014 tax incidence analysis prepared for the state found that Connecticut’s state-and-local tax system hammers low- and middle-income people.
A tax incidence analysis studies which groups pay taxes and how those burdens are shifted. For example, renters effectively pay some or all of their landlords’ property taxes.
The 2014 analysis found the poorest people in Connecticut in terms of adjusted gross income — about 725,000 filers earning up to $48,000 per year — effectively spent 23.6% of their pay on state and local taxes in 2011.
By comparison, the middle-class paid about 13%, while the top 10% of earners paid 10% and the top 1% paid about 7.5%.
And between 2011 and 2017, state officials whittled down multiple credits that assisted low- and middle-income households as legislatures grappled with frequent budget deficits. Byrne said it’s crucial that the 2021 legislature and Gov. Ned Lamont begin to reverse the extremes of income and wealth inequality in the state.
Carstensen agreed but added that officials need to show a greater sensitivity to the plight of Connecticut’s poor, who likely need more assistance than all of the tax relief considered to date.
“If the social justice people aren’t screaming their heads off” about this, he said, “they don’t really care about low-income households.”
Sign up for CT Mirror's free daily news summary.
Free to Read. Not Free to Produce.
The Connecticut Mirror is a nonprofit newsroom. 90% of our revenue comes from people like you. If you value our reporting please consider making a donation. You'll enjoy reading CT Mirror even more knowing you helped make it happen.YES, I'LL DONATE TODAY