Gov. Ned Lamont on Monday detailed a long-promised reduction in Connecticut income tax rates. The proposal is targeted at middle class families, but would help reduce income taxes for 63% of state taxpayers and virtually eliminate income taxes for households that qualify for the earned income tax credit.
The plan, which he announced during a press conference in East Hartford, would lower the rates in the first two of the seven tax brackets. It would reduce the rate on the first $10,000 of earned income from 3% to 2% and would lower the rate on earned income from between $20,000 and $100,000 from 5% to 4.5%. It essentially means joint filers could see about a $600 reduction in their income taxes and single filers could see about $300.
The proposal will be included in the two-year budget proposal the governor will submit to the legislature on Wednesday. If approved by the General Assembly, it would be the first income tax reduction since 1996, but wouldn’t go into effect until 2024.
Lamont is able to propose the income tax reduction because Connecticut’s budget is in the black and running a more than $3 billion surplus for the fourth year in a row.
“This is an important announcement,” Lamont said. “This is the biggest tax cut since the dawn of the income tax in the state of Connecticut.”
“What does that mean to you? It means that most of the tax cut is going to go overwhelmingly to people earning less than $100,000 and almost all of it goes to families earning less than $150,000 to $160,000,” Lamont said.
While that’s true the tax proposal could help single people making up to $500,000 and couples making up to $1 million, as long as that income is all earned and not from capital gains or dividends.
Lamont is expected to receive support for the tax cut. During the press conference, Sen. Saud Anwar, D-South Windsor, said residents could use the help offered by a reduction in their taxes.
Meanwhile, Rep. Holly Cheeseman, the ranking Republican on the Finance Committee, released a statement saying she was pleased to see Lamont propose an idea long-sought by Republicans, who have pitched several proposals including reducing the rate from 5% to 4% for those firmly in the middle class.
“I am pleased the governor has embraced some of the Republican-themed tax initiatives that we proposed last year, although I wish we could provide more immediate relief. I eagerly await to see the additional budget details the governor will unveil this week,” Cheeseman said.
If passed, the governor said taxpayers would begin to see the benefit of the cut in their paychecks beginning in 2024.
“You don’t have to apply for this, you don’t have to fill out the forms, you’ll see a reduction in the withholding which means you’ll be keeping more of what you earn,” Lamont said.
The income tax cut is just one of the tax relief proposals that will be part of his two-year budget Wednesday.
Lamont has also proposed increasing the credit for the pass-through entity tax paid by small and medium sized businesses and an increase in the Earned Income Tax Credit, which will benefit low-income families.
The expanded EITC proposal and the income tax reduction announced Monday amount to a combined savings for taxpayers of around $484 million. Taken together, the two proposals would effectively eliminate state income tax for the roughly 215,000 families who qualify for the tax credit, Mark Boughton, commissioner of the Department of Revenue Services, said.
“Assuming you have two kids, with EITC and this cut, they would pay no income tax,” Boughton said.