State officials have been doling out tax cuts in record levels during the past two years. But despite relief packages totaling more than $1.3 billion, Connecticut’s tax-cutting debate is far from over.
Legislators and other advocates seeking an ongoing child tax credit for families have fallen shy of their goal over the past two years but say their support base has only grown.
And with the prospect of the federal child tax credit shrinking after 2025 — for the second time in four years — advocates for a Connecticut child tax credit say something has to happen here soon.
CT families hit hard over the past three years
“We’re going to get it, we’re definitely going to get it,” said Rep. Gerardo Reyes, D-Waterbury.
“This definitely has traction,” said Rep. Josh Elliott, D-Hamden, founder of the legislature’s new Tax Equity Caucus, who added that anyone who expected pressure for permanent child credit to dissipate will be disappointed. “It’s not going anywhere.”
Questions about the fairness of Connecticut’s state and municipal tax systems have been on the rise over the past decade after lawmakers ordered nearly $1.9 billion in tax hikes to help state government claw out of the Great Recession. And while many of those questions have centered on the poor vs. the wealthy, reformers also say families with children, among both low- and middle-income households, don’t get enough help from government.
The economic pain of the coronavirus pandemic is still felt three years after its arrival, tax reform advocates say. And while inflation has come down from the 40-year high it reached in June 2022 — when the Consumer Price Index topped 9% — it still remains a challenge for many households.
“We’ve had historic levels of inflation in the last couple of years,” and these escalating costs have had “devastating impacts” on groceries and other basic expenses in a family budget, said Lisa Tepper Bates, president and CEO of the United Way of Connecticut.
The local chapter not only has been a strong supporter of a state child tax credit but has led efforts to raise awareness about the high cost of living and true poverty line in Connecticut.
A family of four earning more than $30,000 per year is above the Federal Poverty Level, a metric that focuses chiefly on a household’s pre-tax earnings and the adjusted cost of a minimum food diet — originally set in 1963.
The United Way’s ALICE methodology — an acronym for Asset Limited, Income Constrained, Employed households — more closely analyzes key elements like health and child care, transportation, utilities and other housing costs.
The Connecticut chapter reported in 2021 that a basic “survival budget” for an ALICE family of four was $90,660. Revised projections tentatively will be released in mid-to-late September, and Bates said she expects the true poverty level will increase significantly.
Working families also received scary news in early August when the Lamont administration projected that federally funded heating assistance will plummet this winter, with the maximum benefit dropping almost $1,000 per household.
Officials have ordered big tax relief in past two years
That’s not to say state government has done nothing to help families cope.
A gasoline tax holiday waived some or all of the 25-cents-per-gallon retail tax on gasoline for 13 months between April 2022 and May 2023, saving drivers $330 million, according to Gov. Ned Lamont’s budget office.
Officials approved changes to income tax credits one year ago that would save taxpayers $230 million per year. They ordered another $490 million in annual income tax relief this June, centered on the first major cut in state income tax rates since the mid-1990s.
Lowering the statewide cap on motor vehicle property tax rates saved another $100 million annually.
And nearly all of this relief is going to middle- and low-income households.
Officials helped businesses replenish the unemployment trust, expanded credits to companies that help employees with student loans and repealed taxes on surgical centers and movie theater admissions.
And while they didn’t approve an ongoing child tax credit, they did experiment in 2022 with a one-time income tax rebate, reserving $125 million to send families $250 per child.
State Comptroller Sean Scanlon spearheaded the push for an ongoing child tax credit when he served in the House of Representatives in 2021 and 2022 and also worked to get much of the existing relief passed.
But Scanlon, a Guilford Democrat, said the issue goes beyond helping families cope, and is just as much about ensuring Connecticut’s economic future.
“The child tax credit is one of the best ways we can make Connecticut grow,” he said, adding that increasing numbers of “young people and young families are the [measure] of growth in just about every state that’s growing.”
Federal child tax credit could shrink again
The comptroller also predicted a robust fight for family-focused tax relief next spring, adding that the clock is ticking down on the federal child tax credit.
The federal government currently allows couples earning less than $400,000 per year, and singles making less than $200,000, to claim a credit of $2,000 per child, according to the IRS.
It had been raised to $3,000 — $3,600 for children younger than 6 — in 2021, to help families deal with the financial pain caused by the pandemic.
An estimated 604,000 Connecticut children lived in households that lost a portion of their tax credit when that expansion expired, according to the Center on Budget and Policy Priorities, a Washington, D.C.-based policy group. And about 80,000 lived in homes that slipped below the poverty line, or deeper into poverty, after that change.
But despite predictions from Lamont and other Connecticut officials that Congress would extend this emergency expansion, it was allowed to expire after one year.
And Scanlon noted that after 2025, the credit is slated to shrink to $1,000 — unless Congress acts.
It’s too soon to say whether federal lawmakers will stop a second contraction of that tax benefit, but Emily Byrne, executive director of Connecticut Voices for Children, said other states are recognizing that the trend on Capitol Hill has been to retreat.
Of the 41 states that have a state income tax, Byrne said, Connecticut is the only one that offers neither a tax credit nor some other form of tax break specifically tied to children.
CT child tax credit still faces tough political challenges
The comptroller’s proposal, which has the backing of several groups, involves giving a $600 per child state income tax credit, up to $1,800 per family.
And to ensure that poor working families can benefit, Scanlon recommended that 70% of the credit, up to $420 per child, would be refundable. That means that even if a household earns so little it has no state tax liability to apply the credit to, it still could have $420 per child added to its refund.
Sen. Pat Miller, D-Stamford, who was chairwoman of the General Assembly’s 40-member Black and Puerto Rican Caucus, which disbanded at the end of the last session, said the refundable element is very important to minority lawmakers, especially given the strain that rising child care and housing costs are placing on low-income families.
When Scanlon first introduced his state child tax credit proposal in 2021, the legislature’s nonpartisan Office of Fiscal Analysis projected annual cost would be about $300 million.
That raised concerns with Lamont and other moderate Democrats, who said the state had to be careful about over-extending itself with tax cuts given the global economic uncertainty.
The governor’s communications director, Adam Joseph, said Thursday that the concept of an ongoing credit “remains a potential item for consideration as we craft our proposed budget adjustments.” He added the administration also would watch the next round of state revenue projections, due from analysts on Nov. 10.
Lamont isn’t the only ones with concerns.
Republican legislators last session proposed a tax deduction, rather than a credit, for families with children, which offered far more modest relief — with a big qualifier.
The GOP plan, which majority Democrats in the legislature didn’t support, would have lowered a middle-class families’ taxable earnings by $2,000 per child. For example, $2,000 taxed at 4.5% is equal to a $90-per-child savings. By comparison, a $600 credit reduces a household’s tax obligation dollar-for-dollar, until it reaches $0.
Republicans estimated their plan would have saved families $56 million per year.
And while Scanlon’s proposal still would have allowed poor families with no state tax liability to receive at least $420 per child, the Republican plan had no refundable element.
Many Republicans and some moderate Democrats have a philosophical objection to refundable credits, holding that if a family owes no taxes after some credit value has applied, they shouldn’t be allowed to use any remaining credit value to obtain a refund.
In other words, if you aren’t paying in, then you shouldn’t get anything back.
House Minority Leader Vincent J. Candelora, R-North Branford, said is tax is “for the purpose of collecting revenue” to run government. “It’s not for administering social equity programs.”
But many Democrats disagree.
Rep. Maria Horn, D-Salisbury, co-chairman of the Finance, Revenue and Bonding Committee and a supporter of a state child tax credit, also predicted the debate would continue next year, despite some officials’ reservations.
But Horn also acknowledged that while state finances remain in the black, analysts aren’t projecting the multibillion-dollar surpluses the state has enjoyed in recent years.
To help finance tax relief for families, Horn said her panel would undertake a broad review of credits and exemptions across the entire state tax system.
Many of these tax breaks have existed for years or even decades without being reassessed, and what may have made good economic sense a while ago might not be necessary now. It might be possible, she said, to repeal some tax breaks to help pay for expanded relief for low- and middle-income families.
“I think the fact that Connecticut really doesn’t [offer a child credit] is embarrassing,” Horn added. “We ought to do better.”