Gov. Ned Lamont unveiled plans Monday to cut state income taxes for more than 211,000 working poor families by an average of $211 over the next year.
The governor’s proposal to bolster the state Earned Income Tax Credit is aimed at families that generally will earn between $64,000 and $46,500 in 2023 and would become available with tax returns filed in the winter and spring of 2024.
Lamont is expected to complement this proposal with a broad middle-class income tax that involves the first rate reduction since 1995. The governor will present more details when he presents his budget for the next two fiscal years to the General Assembly on Feb. 8.
“Increasing this tax credit is one of the most impactful things we can do to target direct relief to low-income workers who are providing for their families,” said Lamont, who discussed his EITC proposal during a midday press conference at the Wilson-Gray YMCA Youth and Family Center on Albany Avenue in Hartford.
Eligibility for the EITC is tied both to income and household size.
According to the federal Internal Revenue Service, a single filer with three or more children must earn no more than $56,838 in 2023 to qualify. Those with fewer or no children face a lower income threshold.
Similarly, a couple filing jointly with three or more children must earn no more than $63,698 to qualify.
And while the average household tax relief under Lamont’s new plan would grow by $211, some households will fare much better.
For example, the administration says that a couple with two children could receive up to $585 extra.
Increasing the rate to 40% will make Connecticut among the top five states in the nation with the largest EITC rates. Twenty-nine states and the District of Columbia offer their residents an EITC, and the average rate among them is 22%. Governor Lamont’s proposal to increase Connecticut’s rate will make it higher than each of its neighboring states, including Massachusetts (30%), New York (30%) and Rhode Island (15%).
A credit against the Connecticut income tax, the state EITC was launched in 2011, equal to 30% of the federal credit of the same name. It originally provided refunds totaling $110 million to about 200,000 working poor families in 2012 — an average of $551 per household.
But over the past decade, as legislatures struggled with numerous budget deficits, the credit was whittled down to 23% of the federal EITC.
Lamont and the General Assembly elevated it to a new high in 2021 when it reached 30.5% of the federal credit. And the governor’s latest proposal would lift it to 40% for the 2023 tax year.
This would give Connecticut one of the highest EITC rates in the nation, tied with the District of Columbia and topped only by Maryland, California, Minnesota and South Carolina.
At its current level, the Connecticut EITC provides about $144 million in relief to poor families, according to the General Assembly’s nonpartisan Office of Fiscal Analysis.
Lamont’s budget staff project boosting the state EITC to 40% of the federal credit would push the overall tax break to nearly $190 million and would benefit an estimated 211,675 families.
Unlike certain other state tax credits, the EITC is refundable. If a working household ’s earnings are so low it owes no income taxes, it still would receive the full value of the credit via a refund.
“Numerous studies have shown that the EITC is one of the best anti-poverty tools we can use because it encourages work, boosts economic stability and uplifts generations to come,” Lamont said. “Ultimately, this tax credit helps improve entire communities because these dollars are being invested right back into our local economy through groceries, transportation, clothing, rent, utilities and other necessary expenses. The EITC encourages work and boosts economic stability, and I think it’s about time that we increase it.”
The governor’s proposal is expected to draw strong support from progressive Democrats in the legislature who have argued for years that the combined state and municipal tax systems in Connecticut disproportionately burden low- and middle-income households.
Senate President Pro Tem Martin M. Looney, D-New Haven, a longtime advocate for a strong tax credit for the working poor, said many Democrats had wanted to enacted a state EITC before 2011 but had been blocked prior to that by Republican governors.
“We can say we want to help people out of poverty, but the EITC is one of the ways to actually accomplish that goal,” Looney said. “The EITC is an important piece of a Democratic budget, and I want to thank Gov. Lamont for including it as a priority.”
Lamont still is expected to face considerable pressure from progressives, though, to support a second expanded income tax credit.
A coalition of Democrats led by state Comptroller Sean Scanlon want a new state income tax credit for families with children. Scanlon has proposed a $600-per-child credit that offers a maximum of $1,800 per household. About two-thirds of this credit also would be refundable, ensuring low-income households with little or no income tax liability still would benefit.
This would cost an estimated $450 million per year, about 10 times the value of Lamont’s new relief proposal for the working poor.
The governor prefers to offer tax relief to the middle class by driving down state income tax rates. But while this would chiefly help middle class households, critics note that it also would provide some relief to wealthier filers, while the child tax credit would not be available to top-end earners.
Representatives of Recovery for All CT, a coalition of more than 60 labor faith and other community groups, endorsed Lamont’s proposal to bolster the EITC. But they also made it clear that while an extra $211-per-poor family, on average, will help, it is far from a complete solution.
“We share a vision of ending our state’s extreme racial, economic and gender inequities,” said Nelli Jara, executive director of the Connecticut Worker Center in Bridgeport. “Families are choosing between paying utility bills or buying groceries.”
The state’s largest healthcare workers’ union, SEIU 1199 NE, also belongs to Recovery for All CT, and 1199 President Rob Baril reminded those at Tuesday’s press conference that some home care workers in Connecticut are so poorly paid that they have to live in their cars.
“We are delighted to take a step forward toward a more equitable state,” Baril said. “Obviously we still have many, many big problems.”
Rep. Anne Hughes of Easton, a progressive Democrat and also affiliated with Recovery for All CT, said many of her fellow Democrats the legislature’s majority still want to see Lamont back the child tax credit.
“Tax justice is our Number One priority and the reason is we don’t see any other way of addressing the other converging crises,” Hughes said.
Unless the state can ease its disproportionately high tax burden on low- and moderate-income households, Hughes added, too many families will remain unable to afford decent housing and health care. The imbalance also is contributing to a growing worker shortages in vital segments of the economy that tend to be underpaid, she said, adding this includes health care workers, early childhood development staff, and teachers.