Gov. Ned Lamont and the General Assembly are headed for a collision this spring over tax cuts.

The governor wants to give voters a one-time, $200 rebate in late October, just days before they decide whether to reelect him to a third term.

But lawmakers from both parties want tax cuts of far more than $200 and designed to repeat year after year.

If they promise too much, though, they could jeopardize ongoing efforts to expand child care and bolster local school districts.

The two sides have just 11 weeks to find the proper balance.

“I think we need to plan ahead and try to set a [tax] relief path for the next several years,” said Senate President Pro Tem Martin M. Looney, D-New Haven. Federal cutbacks in health insurance and nutrition assistance already have stripped hundreds of millions of dollars from Connecticut families, and deeper cuts involving Medicaid are set to start in 2028.

Senate Democrats offer broad plan to cut income, sales tax burdens

Helping families cope with those losses, along with Connecticut’s already high electric rates and overall cost of living, is a multiyear effort, said Looney, whose caucus recently introduced a bill featuring more than $760 million in annual tax-cutting options.

Majority Democrats in the Senate favor creating separate state income tax credits for elderly residents receiving in-home medical care and for renters.

Connecticut already exempts most Social Security benefits from state taxation, and the caucus plan would exempt all. Currently, singles whose federal adjusted gross income [AGI] is below $75,000 per year and couples below $100,000 pay no state income tax on Social Security.

Filers with AGI greater than those limits receive a partial exemption, and no more than 25% of any filer’s Social Security benefits is taxed.

The Senate Democratic plan also would create new sales tax exemptions for energy-efficient household appliances, school supplies and prepared meals sold in supermarkets and other non-restaurant establishments. Clothing items costing $100 or less, which currently are exempt for just one week each August as part of Connecticut’s annual sales tax holiday, also would become tax-free year-round.

Though details on many proposals still are being defined, Looney said the package is a response to evolving affordability challenges that the current tax code doesn’t address.

The sales tax proposals are aimed at rising electric costs as well as tariff- and inflation-driven cost increases in basic goods and services, Looney said, adding that affordable elder care remains a big concern.

Lamont last month proposed a new rent-capping system, and Looney said Connecticut must do more to stem an affordability crisis that not only blocks many households from home ownership but makes rent increasingly unaffordable.

The state’s last tax fairness study showed low- and middle-income households effectively pay a far greater share of their earnings than do the wealthy to cover state and municipal tax burdens, in part because landlords easily shift most or all their property tax obligations onto renters.

A new state income tax credit “certainly makes sense in a high-rent state like Connecticut,” Looney added.

Minority Republicans in the state Senate and House also have outlined tax-cutting proposals. The Senate GOP last week called for an unprecedented $1.5 billion in state tax cuts, most involving income tax rates and credits. House Republicans want to return $500 million annually to the middle class by expanding an income tax credit that offsets a portion of municipal property tax bills.

CT already has pledged dollars to child care, education aid

At first glance, Connecticut has enough funds to cover all of these tax-relief plans, though the Senate Republican proposal does push state finances closer to deficit in a year or two.

That’s because aggressive state budget caps have forced annual surpluses averaging more than $1.8 billion, about 8% to 9% of the General Fund, since 2017. Connecticut has used most of those funds to reduce its hefty pension debt and build reserves.

But Connecticut recently has supported a few key programs that also assist working families, and many expect state spending to grow further in the near future as aid from Washington begins to erode.

Lamont and the General Assembly dedicated $300 million last fiscal year to a new program to dramatically boost affordable child care, an initiative that also hinges on receiving hundreds of millions of dollars yearly from future state budget surpluses.

Connecticut officials last fiscal year also added $95 million to the Education Cost Sharing program, the state’s chief operating grant for local school districts. Between last year and this fiscal year, they also pumped an extra $70 million into special education.

When Connecticut households lost almost $300 million in federal tax credits last month that had helped them buy health insurance, the governor and legislators settled on a plan to backfill 40% of that lost aid with state dollars, about $115 million. Officials here hope Congress will reverse that cut, but if nothing changes, many in Connecticut want to make that new state assistance permanent.

And looming large behind all of this are federal cuts to Medicaid assistance ordered last July and scheduled to hit Connecticut hard in 2028. Will officials here also want to use state dollars to mitigate the expected loss of hundreds of millions annually from Washington?

And can Connecticut offer big-time tax relief year after year, maintain the commitments it’s already made, and be ready to temper deep cuts in federal assistance?

Lamont, a fiscally moderate Democrat, isn’t so sure.

The governor wants to send $500 million back to 2.2 million Connecticut taxpayers this October as one-time, $200-per-person rebate.

Critics call it a reelection gimmick, while Lamont says the $200 will make a difference.

But the administration is cautioning lawmakers not to promise too much relief for too long, given the commitments already made and challenges on the horizon.

“Gov. Lamont welcomes the strong legislative commitment to reducing costs for Connecticut families,” said Chris Collibee, the governor’s budget spokesman. “The administration will closely monitor these proposals as they advance through the legislative process and will work hand-in-hand with legislative leaders to deliver an honestly balanced budget that strengthens affordability and long-term fiscal stability.”

House Speaker Matt Ritter, D-Hartford, also urged caution, noting the tax-cutting ideas are growing quickly.

“In isolation, there’s not one proposal I have read that I probably don’t support,” he said. “The burden is, we’ve got to make sure it all adds up.”

Support for a CT child tax credit piling up fast

But many state legislators counter that the eroding aid from Washington and Connecticut’s already high cost of living are exactly why significant, ongoing relief is needed right now.

Many legislators from both parties have called for a new state income tax credit for poor and middle-class households with children.

Three related measures already have been filed with the Finance, Revenue and Bonding Committee, which has jurisdiction on tax matters.

The most popular proposal to date — with more than half the 151-member House of Representatives signed on in support just two weeks into the legislative session — would create a $600-per-child benefit, up to $1,800 per household, for single parents earning $100,000 or less and for couples at $200,000 or less.

The credit also would be “refundable,” meaning that even if a household earns so little it has no state tax liability to apply the credit to, it still would have $600 per child added to its refund.

The program is expected to cost $350 million to $400 million per year.

“We are a high-cost state to raise children,” said Rep. Kate Farrar, the West Hartford Democrat spearheading the measure, who noted a record-high 581,000 Connecticut households – about 40% – couldn’t afford a basic “survival” budget in 2023, according to a report last September from the United Way of Connecticut. And “this moment is even more dire given the chaos of Washington and the impact of tariffs and federal cuts. … I think it’s imperative for us to look at what truly works.”

A 2022 report by the Center on Poverty and Social Policy concluded more than 61 million children benefited from an expanded federal child tax credit during the COVID pandemic and that households chiefly used the assistance to purchase food, housing, child care and other basic needs.

An estimated 604,000 Connecticut children lived in households that lost a portion of their federal child 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.

Besides the federal government, 17 states and the District of Columbia offer a child tax credit, according to the National Conference of State Legislatures, and Rhode Island Gov. Dan McKee proposed his state’s first child tax credit last month.

Farrar added that Connecticut can provide ongoing tax relief, preserve its investments in child care and education and help temper the worst cuts from Washington. But it might have to be less aggressive when it comes to saving to pay off pension debt.

Connecticut has made its full required contributions to its pensions for state employees and for municipal teachers every year since 2011. About 30% of that required annual payment, which currently stands at about $3.4 billion, involves saving for retirement benefits for present-day workers, while the remaining 70% chips away at a huge pension debt three generations left the state between 1939 and 2010.

But since 2020, Connecticut also has contributed another $10 billion from these huge, forced surpluses, about $1.7 billion per year.

State officials helped some of the state’s poorest working families last year by expanding Connecticut’s earned income tax credit, but for most of those households unable to afford a survival budget, things haven’t gotten better, Farrar said.

And while paying down pension debt faster than required is important, she added, “the real challenge is we’re still leaving out 355,000 families that are not able to make ends meet.”