Gov. Ned Lamont pitched an income tax cut in CT. Here’s an overview of his proposal

In his biennial budget proposal, Gov. Ned Lamont offered the first major cut in state income tax rates since the tax was enacted in 1991.

And while the $600 million-plus tax relief package Lamont and legislators approved last May was dominated by one-time assistance, this year’s proposal is built to last.

“I wanted to make sure this is something we can do, not just for the next year or two,” said the governor, who discussed his plans in a press conference on Feb. 6. “I think people want the consistency and certainty to know this is a tax cut that’s built to last. … It’s going to make a difference.”

Here’s what you need to know about his proposal, which the legislature must approve before it becomes law.

How would the governor adjust income tax rates?

While many Americans pay just one income tax rate on their non-investment earnings, Connecticut residents pay blended rates when they file their state tax returns.

The state income tax has seven different rates — from 3% to 6.99% — each assigned to a different income range.

For example, a couple with an adjusted gross income of $250,000 currently pays 3% on the first $20,000, 5% on the next $80,000, 5.5% on the next $100,000, and 6% on the final $50,000 that they’ve earned.

The governor wants to reduce the first rate — which also applies to the first $10,000 earned by single filers — from 3% to 2%. He also wants to lower the next rate — which covers earnings between $10,001 and $50,000 for singles and between $20,001 and $100,000 for couples — from 5% to 4.5%.

The amount of state income tax you owe also can be affected by a series of personal exemptions and credits.

Who would save money through the plan, and how much would they save?

The administration estimates Lamont’s plan would save filers $436 million annually, with 1.1 million of Connecticut’s 1.7 million tax-filing households benefiting.

They estimate many middle-class joint filers would save about $600 per year with the proposed cuts, and many middle-class single filers would save about $300.

When would the tax cuts take effect?

If approved by the legislature, the rate reductions would start in January 2024.

How were the tax cuts made possible?

The governor insists this relief was made possible, in large part, because state government abandoned bad fiscal habits of the past and began saving rather than spending surpluses, paying down debt whenever possible.

Since 2018, state government has amassed roughly $9 billion in surpluses. Those funds largely were used either to create the largest rainy day fund in state history — a $3.3 billion reserve — or to whittle $5.8 billion off of the state’s considerable pension debt.

Lamont’s budget hinges on a bipartisan deal he reached with legislative leaders to renew state caps on spending and borrowing, as well as savings programs that limit officials’ ability to spend volatile tax receipts tied to investment earnings or to craft budgets with little to no fiscal cushion.

Has Lamont proposed any other changes to CT’s income taxes?

Lamont also wants to increase the state Earned Income Tax Credit — which serves working poor households generally earning less than $64,000 per year — from 30.5% of the federal EITC to 40%.

This would send an extra $44.6 million to more than 211,000 households, boosting their refunds by an average of $211 per year.