A key state legislative committee is poised to counter Gov. Ned Lamont’s proposed income tax cut with a very similar plan — but some of Connecticut’s richer households would not benefit from it.
The bill the Democrat-controlled Finance, Revenue and Bonding Committee will bring to a public hearing Friday morning would reduce the two lowest marginal rates on the tax, just as Lamont proposed.
But while full details still are being negotiated, the measure, headed for a 10 a.m. hearing in the Legislative Office Building, would gradually phase out much of the proposed relief for a single person as their income exceeds $200,000 per year and for a couple whose income exceeds $400,000. The speed of any phase-out and many other elements of the bill remain under discussion.
“I hear the argument that … everybody should feel invested in” a broad-based income tax cut, said Rep. Maria Horn, D-Salisbury, co-chair of the finance committee.
But while a tax cut expected to be worth $300 to $600 would be beneficial to low and moderate-income households, “I’m not sure the benefits are meaningful to people in the upper bracket,” Horn added.
Lamont unveiled a $500 million-plus tax-cutting plan in early February when he proposed a $50.5 billion budget for the next two fiscal years. The centerpiece of that plan — worth close to $450 million per year — involved the first state income tax rate cut since the mid-1990s.
Connecticut taxes most income using a blend of up to seven different rates. For example, a couple earning $110,000 annually would be charged 3% on the first $20,000 in adjusted gross income, 5% on the next $80,000 and 5.5% on the final $10,000 of AGI.
Lamont proposed reducing the two lowest rates starting in January 2024: 3% would become 2%, and 5% would become 4.5%.
[RELATED: Gov. Ned Lamont pitched an income tax cut in CT. Here’s an overview of his proposal]
The committee plan does the same thing but adds the phase-down provision.
Critics of the governor’s plan — which applies the tax reductions to most filers, including many with high incomes — noted that while the middle class received most of the benefit, many wealthier households still would get modest relief.
The two ranking Republicans on the finance committee, Sen. Henri Martin of Bristol and Rep. Holly Cheeseman of East Lyme, said many Republicans also favor some limits on who can benefit from the next income tax cut.
“We should concentrate on helping out the middle class, who are the ones who are feeling most acutely the increased costs” from inflation, Cheeseman said.
And once a household earns close to $500,000 per year, an income tax cut around $300 isn’t a game-changer. “Do they really need that type of tax cut?” he said. “I don’t think so.”
And Horn said there are other reasons besides fairness to consider capping who gets a state income tax cut.
With the national economy uncertain, legislative leaders have said Connecticut must be cautious. If state officials overreach and provide too much tax relief this year, they could end up having to repeal it one year later.
“I don’t think it helps anyone to be whipsawing back and forth,” Horn said, adding that the state already has a history of fluctuating back and forth with several of its tax credits. “We’re all over the place.”
One of its income tax credits, which offsets a portion of a household’s local property tax payments, has see-sawed for much of the past two-and-a-half decades, climbing in stages from $100 to $500 and dropping eventually back to $200, while also revising eligibility rules several times.
The finance committee also is considering several other forms of tax relief. Limiting who benefits from an income tax rate cut could free up resources to support other tax breaks.
The panel is expected to back the governor’s proposal to boost the state income tax credit for Connecticut’s working poor, increasing its value from 30.5% of the federal Earned Income Tax Credit to 40%. This would be worth an average of $211 more to more than 200,000 households generally earning less than $60,000 per year.
And Horn said the committee still is weighing creating a new child tax credit within the state income tax. But she quickly added that its fate remains uncertain and, if recommended, would likely be much more modest than advocates for the credit have sought.
State Comptroller Sean Scanlon, who first proposed the credit when he co-chaired the finance committee as a state representative in 2021, wants the state to provide $600 per child — up to $1,800 per household — to middle-class families.
Horn didn’t speculate what level of child tax credit the committee might propose, if any.
“It’s a work in progress,” she added.