The Connecticut legislature’s finance committee advanced a two-year tax plan on Wednesday that disqualifies some wealthier households from the income tax cuts proposed by Gov. Ned Lamont while broadening an expansion of the Earned Income Tax Credit for the working poor.
The legislative tax plan followed a spending plan released by the Appropriations Committee on Tuesday. The Finance, Revenue and Bonding Committee’s proposal remained under discussion until late Wednesday afternoon.
Together, the proposals represent a legislative response to a $50.5 billion budget plan recommended by the governor back in February. Lamont’s headline provision, a broad-based reduction in the state’s two lowest tax brackets, was slightly curtailed by the legislative tax-writing committee.
The panel opted to scale back some of the tax relief for wealthier residents by including ceilings for the tax cuts, meaning single filers making more than $200,000 per year and joint filers making more than $400,000 per year would see no reductions. Meanwhile, the committee preserved Lamont’s proposal to lower the 3% rate to 2% but chose to reduce the 5% rate to 4.75%, a smaller cut than the 4.5% proposed by the governor.
Lawmakers recommended strengthening tax relief for lower-income residents. The committee bolstered a contemplated expansion of the EITC. Where the governor had proposed to increase from 30.5% of the federal poverty rate to 40%, the legislative panel pushed the rate up to 45%.
Rep. Maria Horn, a Salisbury Democrat who co-chairs the committee, said that the panel was fortunate to be recommending a revenue plan focused largely on providing tax relief.
“Nearly this entire package is about reducing taxes,” Horn said. “What we have tried to do here is strike a balance that would help a variety of businesses, consumers, retired people, workers across the board… We are committed to returning taxes in a moment of fiscal health for the state of Connecticut.”
Despite calls from some legislative Democrats and progressive advocates, the revenue package did not include any ongoing version of the child tax credit, which the state offered on a one-time basis last year.
The proposal did include a provision not present in the governor’s budget designed to soften a tax credit “cliff” for retirees who currently become ineligible for pension and annuity as well as IRA income tax deductions if their incomes exceed $75,000 per year or $100,000 for households. Under the committee’s bill, eligibility for the deduction would be gradually reduced as income exceeds those thresholds.
“It is indeed a middle class tax cut,” Rep. Jason Doucette, D-Manchester, said. “A married couple with a couple of pensions and some social security income making $101,000 is certainly a middle class family and they are going to see some relief under this revenue package.”
Where the Appropriations Committee’s spending plan enjoyed bipartisan support, the finance package proved considerably more divisive. Rep. Holly Cheeseman, R-East Lyme, said despite supporting elements of the bill, she viewed the overall package with disappointment because it did not offer enough tax relief.
“This does not even match what the governor was doing in terms of income tax relief for our residents and I thought that was pretty stingy,” she said.
Republicans also faulted the finance package for employing an accounting technique called “revenue intercepts” to allocate funds before they can be counted against a statutory spending cap, one of several fiscal guardrails favored by the governor and renewed by lawmakers earlier this year.
“One may not argue with the intended destination of this money, I have the issue of how it is accomplished and that we are basically bypassing that statutory requirement that we set in place for another five years,” Cheeseman said. “In the belief of my caucus, and I may get some sympathy in the Executive Branch, that this is not the way to go about directing funds where they may very well be needed.”
Democratic legislative leaders released a joint statement Wednesday, praising the two committees for their work but calling for additional investments in a variety of areas, a task made difficult given that the legislative appropriations plan fell narrowly under a statutory spending cap.
“As we move forward, we will be looking at finding ways to bolster funding in a number of critical areas – including nonprofits, public schools, higher education, healthcare and childcare workers, paraprofessionals and group homes – while still protecting the fiscal health of the state and providing residents with historic tax relief,” Senate President Martin Looney and House Speaker Matt Ritter said.
A spokesman for the governor said the administration was still reviewing the finance package Wednesday evening.