An income tax reduction for residents making up to between $150,000 and $200,000 a year is among the proposals Gov. Ned Lamont said Tuesday he is weighing ahead of the legislative session that begins next month.
In a Monday interview with the Hartford Business Journal, Lamont said he was considering the cut as well as permitting the sunset of a corporate tax surcharge as part of a coming budget proposal aimed at encouraging economic growth.
During a Tuesday morning press conference, the governor told reporters he had been discussing the income tax reduction with lawmakers on both sides of the aisle and believed a long term cut may be in order following last year’s budget adjustment package that included more than $600 million in largely temporary tax relief.
“We’ve got a lot of rebates, a lot of credits, a lot of one-off ways that we provided immediate support to people, especially in this last year with high rates of inflation,” Lamont said. “I’d like to think that now it’s a lot simpler if we provide a middle class tax cut, that’d be an income tax cut for people up to a certain amount, say 150 or 200 [thousand].”
The administration’s budgetary agency, the Office of Policy and Management, was pricing out a potential tax cut in an effort to ensure it would not over-extend the state’s finances, Lamont said. Although the state has a projected surplus of $1 billion and was on track to pay down its pension debt by an additional $2.8 billion, Lamont has expressed apprehension over the impact a potential economic recession may have on state coffers.
“I don’t want to do anything we can’t afford and I don’t want to do anything that leaves us a cliff, you know, two years out,” Lamont said. “That’s often the way it works around here and I’m not going to let that happen but I think we can provide some middle class relief which I think is long overdue.”
The governor’s comments were welcomed Tuesday by state Republicans, who unsuccessfully pitched a broad range of tax relief proposals earlier this year, which included an income tax cut for households making less than $175,000.
House Minority Leader Vincent Candelora said he had discussed the proposal with the governor prior to a special legislative session in late November.
“It’s a good start at long term, systemic tax reduction for lower and middle income people,” Candelora said Tuesday. “It’s something that Republicans ran on. We doubled down on it all through the summer and I think it resonated with a lot of people throughout Connecticut. Obviously, it resonated with this governor and I think it’s a good policy to look at.”
Senate President Martin Looney said he was pleased to hear the governor discussing middle class income tax cuts and said there were several avenues policymakers could take to provide that relief. Those details would be ironed out through the legislature’s fiscal committee process, he said.
“One way is to make sure we make the child tax credit permanent, another is to sustain the earned income tax credit at its current level of around 40% of the federal tax credit. Another would be to further increase the property tax credit on the income tax,” Looney said. “There are a variety of ways of going about providing middle income tax relief.”
Looney reiterated Lamont’s condition that potential tax relief be crafted in a way that does not create a fiscal cliff later on.
“We may be looking at a deficit in the out years when the federal money is no longer there so we have to be prudent and target relief where it’s needed, which is in the middle income range,” Looney said.
The news comes at a time when inflation seems to be cooling. According to the U.S. Bureau of Labor Statistics inflation only increased 7.1% in November. That’s down from 7.7% in October.
The Federal Reserve’s Open Market Committee will announce Wednesday how it plans to handle the news. It has already signaled a 50 basis point hike and typically doesn’t deviate from what it has already broadcast.
The Fed has raised rates six times already this year. If it raises it by 50 basis points Wednesday it would bring the rate up to 4.5%, a 15-year high.
Inflation increases have actually been good for the state budget because it’s brought in additional sales tax. Last year, sales taxes rose 10%, followed by an 11% increase. Next fiscal year is estimated at about 7.6%. That’s partially due to historically high inflation.
When it comes to Connecticut’s budget, for the first time in at least five years tax receipts are growing faster than fixed costs.
Revenues, according to state budget officials, are expected to grow about $400 million more than its debt each year of the biennium.