Tax-cutting proposals and gubernatorial election years traditionally go hand in hand, and 2026, so far, has been no exception.

Republican state legislators and progressive lawmakers and policy groups have lined up behind plans to deliver big state income tax relief to the middle class by expanding different credits.

One GOP gubernatorial contender has revitalized the mathematically suspect proposal of eliminating the state income tax entirely, while another recently offered a cryptic suggestion that the municipal tax on cars be scrapped.

And Gov. Ned Lamont, who has adopted “affordability” as his mantra, is expected to propose a $200-per-person tax rebate when he recommends state budget adjustments to legislators on Wednesday.

But there are many forces working against tax relief this year as well, and the governor and lawmakers are expected to be careful how much revenue they return to taxpayers.

State officials have invested big in local education aid and affordable child care in recent years, and they not only want to avoid scaling those back but hope to expand them further.

Federal aid is expected to plunge dramatically in the next few years, particularly involving Medicaid and nutrition assistance, and many Connecticut lawmakers want to supplant some of those vanishing grants from Washington with local dollars.

Lamont, a fiscally moderate Democrat, has been wary of proposals that would reduce the huge annual surpluses Connecticut has been generating since it imposed aggressive new budget caps in 2017. The state has used those dollars to whittle down its hefty pension debt but still owes more than $33 billion in this area.

“I am always focused on driving down costs — more taxpayers, not more taxes,” Lamont said. “Connecticut families have been hearing me say that for years.

Tax-cutting ideas are plentiful at the Capitol

Lamont, who hopes to win a third term this November, signed big tax state cuts into law during his second term.

A 13-month-long gasoline tax holiday and a one-time $250-per-child income tax rebate returned about $360 million to households, chiefly in 2022.

In 2023, the governor signed the first state income tax rate cut since the mid-1990s. That, coupled with other income tax changes, saved poor and middle-class households more than $450 million last year.

But households here and across the nation suffered greatly in 2022 when inflation hit a 40-year high, topping 9% in June.

One of the most painful cutbacks recently ordered by Trump and Congress involved elimination of federal tax subsidies that helped low- and middle-income households purchase health insurance. The hit to Connecticut consumers is estimated at nearly $300 million per year.

Given those and other factors, legislators and advocacy groups from across the political spectrum are pushing for more state tax relief.

Connecticut House Republicans last October proposed dramatically expanding a state income tax credit that offsets a portion of middle-class households’ municipal property tax bills. The GOP specifically wants to add as much as $700 in relief per filer. This would cost the state about $500 million per year and rival Lamont’s 2023 relief plan as one of the largest income tax cuts in Connecticut history.

“I think that we’re at a critical point when it comes to affordability that we have to look at property tax relief,” said House Minority Leader Vincent J. Candelora, R-North Branford, adding “a bolder step” is necessary because too many families can’t afford to remain here. “We cannot just nibble around edge.”

Majority Democrats in the House and Senate have been pushing hard for a permanent state tax credit for low- and middle-income families with children. The most popular plan involves an income tax credit of $600 per child, up to $1,800 per household. The estimated cost ranges from $300 million to $400 million per year.

Senate President Pro Tem Martin M. Looney, D-New Haven, a strong advocate for the credit, said it’s one of the few options to temper a combined state-and-municipal tax system that already overburdens working families.

The state forces cities and towns to generate almost all their revenue, excluding state grants, from municipal property taxes. That levy is “regressive,” meaning the tax rate imposed doesn’t rise or fall based on a household’s income or wealth.

And while state government’s biggest revenue engine, its income tax, has seven graduated rates, its second-largest source — its sales tax — is regressive, imposing a 6.35% rate on nearly all goods and services, regardless of consumers’ income or wealth.

Connecticut’s last tax fairness study, in February 2024, showed state and municipal taxes effectively consumed 39.9% of the earnings of Connecticut’s poorest 10% of households in 2020. At the same time, middle-income households lost 11.5% to 13% while the highest-earning decile effectively paid 7.3%, or less than one-fifth the rate of the poorest.

For people already burdened by Connecticut’s tax system, “the loss of those [federal health insurance] subsidies is going to be such a painful and appalling hit,” Looney said.

Lamont wants legislators to adopt a huge tax relief plan, but only for one year. The governor will propose a $500 million sales tax rebate that would send $200 back to individuals that earn less than $200,000 per year and $400 to couples that earn less than $400,000 per year.

Protecting new investments in education and child care

At first glance, Connecticut has more than enough funds to provide new state tax relief.

For the past eight fiscal years, the state has wrapped its books with more than $1.8 billion, on average, unspent. That tally represents 8% to 9% of the General Fund, a huge total, given that more than three-quarters of the state budget represents either fixed costs or municipal aid.

But for the first time in many years, there are strong forces seeking to drive those surpluses down.

State government expects to lose hundreds of millions of dollars annually in federal Medicaid dollars by 2027-28 if the cuts Congress ordered last July are not amended.

And legislators here already have been talking about scaling back their savings efforts to sustain and grow key investments that effectively provide relief to working families.

Connecticut’s Education Cost Sharing program, its chief operating grant to local K-12 school districts, has grown to almost $2.5 billion this fiscal year — up $440 million or 22% from 2019. More state funds for local education, legislators say, reduces the need for further municipal tax hikes.

But cities and towns say the ECS program had failed to keep pace with inflation for more than a decade and that, even with the new growth, communities still lose hundreds of millions of dollars annually.

But legislators say they expect another strong push in 2026 to bolster the grant further, particularly by increasing the “foundation” or base-level funding assigned per pupil. This could add tens or even hundreds of millions to the program in the coming years.

In addition, legislators last fiscal year added $40 million to mitigate a growth crisis in special education funding. Another $30 million in state assistance to districts in this area was added this fiscal year, and plans call for another $30 million bump in 2026-27.

House Speaker Matt Ritter, D-Hartford, said his caucus wants to preserve and build on these education funding gains. And the same holds true for a new program created with $300 million last spring to dramatically expand affordable child care, another key form of relief for working families, he said.

“If we are disciplined,” Ritter added, the child care endowment “might be one of the biggest programs Connecticut has ever launched.”

But the legislators designed the program to receive a portion of the unspent funds left over at the end of each fiscal year. And the bigger the tax cut, the less likely funds will be left over.

That doesn’t mean lawmakers shouldn’t explore relief, Ritter added. They just have to be realistic about how much they can provide — otherwise, they will end up undoing other valuable new programs.

“We can’t celebrate and be champions for the child care trust fund and then turn around and not put any money in it,” he said.

Similarly, Senate Minority Leader Stephen Harding, R-Brookfield, said his caucus supports finding new tax relief for Connecticut’s middle class. But the legislature must be careful not to gut the savings programs that have provided an extra $10 billion to eliminate pension debt since 2017.

“I think we have to be open to the discussion of tax cuts,” he said. “The affordability crisis has hit this state hard.”

But Harding added that lawmakers can’t forget Connecticut’s past fiscal mistakes. Legislatures and governors failed to properly save for pension benefits for more than 70 years prior to 2011, leaving Connecticut one of the most indebted states in the nation.

“We need to be fiscally responsible about how we approach” tax relief, he said. “We have to be mindful of what occurred.”

Gubernatorial campaigns ramp up tax-cutting talk

But Lamont also may be feeling pressure to cut taxes on an ongoing basis from his rivals in the gubernatorial race.

Sen. Ryan Fazio of Greenwich and former New Britain Mayor Erin Stewart, both Republicans, have said the legislature should prioritize tax relief for the middle class but haven’t released specific plans to date.

Stewart issued a four-word tweet on Jan. 27: “Eliminate the Car Tax,” a reference to the property tax that cities and towns levy on motor vehicles. Her campaign did not elaborate on that statement.

But cities and towns generate more than $900 million annually from taxing vehicles, and Connecticut Conference of Municipalities Executive Director Joe DeLong said any car tax elimination that didn’t replace that lost revenue would be fruitless.

Scrapping the tax doesn’t eliminate the need, he said, adding that in many communities, the tax burden “likely gets shifted onto the property tax on people’s homes.”

DeLong added such a plan ultimately would hurt vulnerable residents. Elderly residents who own a home but don’t drive or own a vehicle any longer would face higher taxes on their dwelling. And poor renters who don’t own a car but rely on public buses also would likely face a rent hike driven by higher taxes on their landlord’s building.

Betsy McCaughey, the Republican Newsmax host and former New York lieutenant governor who also is running for governor, recently said if elected she would phase out Connecticut’s income tax.

Connecticut’s GOP gubernatorial nominee in 2018 and 2022, Bob Stefanowski, had made a similar claim in his first campaign but shied away from it in his second run as he became increasingly pressed for details on how he would achieve it.

Connecticut has relied on revenue from certain incomes since it established a capital gains tax in 1970 and shortly thereafter broadened the levy to include dividends and certain interest earnings. A tax on all income was enacted in 1991, and it gradually has become the dominant source of revenue for state government, projected to cover 53% of the General Fund next fiscal year.

When asked how state government would function on less than half of its current revenue stream, McCaughey, a Republican, predicted eliminating the tax would spark massive economic growth, driving up receipts from all other taxes.

The state’s remaining revenue sources would need to more than double their collective production to cover such a gap.

“I assure you it can be done,” she said, adding “I don’t think [spending] cuts will be necessary.”

When asked about McCaughey’s claim, Lamont said, “Do I think we can completely eliminate the income tax without creating a hole in half of our state budget? Truthfully, no, but I do think we can look to find ways to reduce and cut it, which I’m proud to have done.”

Rep. Josh Elliott of Hamden, a progressive who is challenging Lamont for the 2026 Democratic gubernatorial nomination, told the Connecticut Mirror earlier this winter that the state has enough resources to provide tax relief for working families and invest in core programs like education and child care.

“It’s not one or the other,” he said.