A new tax credit incorporated in last year’s state budget will help Chintamari Kandel finally pay off some of his household expenses.
Kandel’s wife, Prava Baral, said the couple wouldn’t be buying any luxury items with the $700 they’re getting from Connecticut’s brand-new Earned Income Tax Credit (EITC) program. Their bills will swallow every penny.
But “it will help very much,” said Kandel, who lives in Branford with Baral and their two small children. Their taxes had just been prepared last Thursday evening by Yale student volunteers at the main branch of the New Haven Public Library. It is one of the many Volunteer Income Tax Assistance (VITA) sites around the state.
Roughly 190,000 low-income Connecticut workers like Kandel and Baral are expected to share $110 million this year. The money was included as part of the two-year $40.1 billion budget to help people meet ends. The budget passed last May along party lines with not one
Republican vote. Since January, $49.3 million of EITC money has gone to more than 70,000 Nutmeggers, according to Sen. Majority Leader Martin Looney.
Sandra (who asked that her last name not be used) said she’ll use her unspecified EITC money to pay off her daughter’s college tuition, her property taxes, and outstanding medical bills.
“After that, there’s nothing left,” the West Haven woman said. “I get paid every two weeks so this little bit helps.”
Tax filers do not have to pay state income tax to qualify, but they must be eligible for the federal EITC and have earned income either at a part or fulltime job in 2011. The state allotment is 30 percent of the federal.
A 12-year struggle
Looney first introduced the idea of a state EITC to the General Assembly in 1999 as then-chair of the Finance Committee. But with a Republican governor, he said the bill was squashed.
Twice it came up for a vote, and passed, but former Gov. Jodi Rell vetoed it.
Last year Democratic Gov. Dannel P. Malloy gave the program his blessing.
“The earned income tax credit is in every other Northeast state,” said Looney, except New Hampshire which has no income tax. “Republicans objected because they said if you don’t pay state taxes, why get credit? But they pay other taxes like gasoline, sales and property.”
Individuals earning less than $25,000 and couples who earn no more than $44,000 a year don’t pay state income tax.
In New Haven, Looney’s district, he said about 10,000 have received the EITC so far this year.
“It means that’s going to be a significant infusion of money coming in. This will mean that the money being spent will be circulated in the community. Increased spending and purchasing power,” he said.
And for some folks like Kandel and Sandra, it means paying for their basic-needs.
A good idea, but …
Republican Sen. Len Fasano, R-North Haven, said even though he voted against the current state budget, he was actually in favor of having some sort of EITC provision, unlike many of his GOP colleagues.
At the national level the program wasn’t the partisan issue that the current political landscape would cause one to believe. In fact, the federal program was implemented by President Ronald Reagan.
But many Republican lawmakers in Connecticut like House Minority Leader Lawrence Cafero, have described it as “a form of welfare.”
“It is a little bit of an equalizer,” countered Fasano. “Some people say (since EITC recipients) don’t pay taxes, why (should they) get the credit? But they’re still paying taxes. So I’ve been in favor of it.” In fact, he said he pushed the poverty-reduction program when Rell was in office, but she wouldn’t budge.
“I believe in the system and think it’s good for people who deserve it,” he said.
But Fasano pointed to a weakness in the system. He said there’s been fraud. And he’s right.
“The (tax-filing) process is not a verification process,” said Fasano. “Apparently there’s some looseness. There’s a lack of verification on the issue of getting the credit.”
In 2005, the U.S. Government Accountability Office (GAO) reported that the IRS estimated that in 1999 (the most recent year data were collected) 27 percent to 32 percent of dollars spent—or $8.5 billion to $9.9 billion—on the federal EITC were fraudulent. Some filers claimed children who didn’t live in the household (an eligibility requirement); some underreported their income on their tax returns in order to qualify for the credit.
As a result, the GAO reported that a better verification system was put in place that requires documented proof that dependent children lived in the home for at least half the year, as well as other safeguards. In 2010, the GAO estimated that $16.9 billion in fraudulent payments were made under the federal program.
This is the first year the state has sponsored a similar tax credit program and there have been no reported cases of fraud during the first two months.