Lawmakers challenge Lamont to tax rich to pay for child tax credit
Yehyun Kim / CT Mirror
State Rep. Maria Horn, D-Salisbury, co-chair of the Finance Committee.
A key legislative panel endorsed a new $150-per-child state income tax credit Wednesday for middle class families, alongside a temporary income tax surcharge on wealthy households to ensure the relief won’t vanish if cuts in federal aid push state finances into distress.
The complementary proposals advanced Wednesday by the Finance, Revenue and Bonding Committee set the stage for a showdown among Gov. Ned Lamont and his fellow Democrats in the legislature’s majority as they try to negotiate a new state budget before the session ends June 4.
The committee, which wrapped work Wednesday on the bills it raised, also approved business tax changes expected to generate about $175 million in new yearly revenue, revised budget caps to shield core state programs from impending cuts in federal aid, scrapped a proposal to withhold driver’s licenses from delinquent taxpayers, endorsed new borrowing to help cut electric bills and advanced Gov. Ned Lamont’s plan to use expanded hospital taxes to leverage more aid from Washington.
“We shouldn’t sit here and pretend we are living in ordinary times. We are not,” said Rep. Maria Horn, D-Salisbury, co-chairwoman of the finance committee. “We are watching as funds that protect our most vulnerable residents get slashed daily.”
President Donald J. Trump already has used executive orders to cut hundreds of millions of dollars in aid to Connecticut for public health, addiction, education and other programs.
And Congress has set a target of achieving $880 billion in reductions to the national budget, cuts projected to cost Connecticut hundreds of millions of additional dollars in yearly aid at best, billions at worst.
A tax break for middle-class families, a capital gains surcharge for the rich
“We have a responsibility as policymakers to make sure that the have-nots have something,” said Rep. Patricia Miller, D-Stamford.
State government will try to mitigate some of the cutbacks triggered by federal budget decisions, but legislators said Connecticut families need more money.
The linchpin of the Democrat-controlled finance committee’s tax package involves a new $150-per-child credit, $450 maximum per household, for single parents earning up to $100,000 per year and couples earning up to $200,000, starting with 2026 earnings.
The credit then would be gradually phased out. For every $1,000 earned above those thresholds, households would lose 10% of the credit’s value.
Democratic legislators, who’ve been pushing for a child tax credit for the past four years, opted to advance this proposal rather than Lamont’s plan to increase another middle-class income tax credit. The governor in February proposed boosting a credit that offsets a portion of local property tax bills from $300 to $350.
But legislators also were worried about forfeiting the $83 million annually that nonpartisan analysts project it would cost the state to offer the child tax credit.
The finance committee amended its revenue plan during Wednesday’s debate, adding a temporary 1.75% surcharge on the capital gains earnings of individuals whose overall income exceeds $1 million and on couples topping $2 million. The surcharge would be applied through 2029 and then expire and would include a one-time exception for the sale of residential and business property.
Sen. John Fonfara, D-Hartford, the committee’s other co-chair, said legislators didn’t want to punish families and individuals who planned to sell their home or business to finance their retirement.
Fonfara added analysts projected the capital gains surcharge — before legislators added the one-time exceptions for home and business sales — would generate $284 million per year in revenue. Legislators did not have an updated revenue estimate that includes those exceptions.
Democrats on the finance committee narrowly adopted this capital gains surcharge proposal over a coalition of Republicans and moderate Democrats by a 27-21 tally.
Rep. Joe Polletta of Watertown, ranking House Republican on Finance, charged Democrats with having only one approach toward solving budget challenges.
“It’s always a tax,” he said. “What if we look at some reductions?”
The Watertown lawmaker noted that General Electric cited 2015 state tax hikes shortly before announcing plans to move its Fairfield headquarters to Boston the following year, adding that if “businesses have left, high earners can easily leave.”
Rep. Jill Barry, a Glastonbury Democrat, said, “Now is not the time to be raising taxes” before reminding her colleagues of Lamont’s oft-used assertion that Connecticut “needs more taxpayers, not more taxes.”
Lamont has said boosting state taxes on the rich would prompt them to flee Connecticut and has consistently blocked efforts to do so in recent years.
“Increasing taxes won’t help our state grow — which is also a priority for the governor,” Lamont spokesman Rob Blanchard said late Wednesday. “While it’s early in the process, we look forward to working together to pass an honest budget that reflects the needs of our state today and builds a better tomorrow.”
Blanchard also noted that, “Over the last several years, Connecticut has managed to turn its fiscal house around, while cutting taxes for working families and the middle class.”
But given the huge impending cuts in federal aid, Senate President Pro Tem Martin Looney, D-New Haven, an advocate for a more progressive state tax system, proposed several options this year to collect more from Connecticut’s top earners through income or property taxes.
The Senate leader noted last week that Congress is slashing aid to states to finance an extension of 2017 federal income tax cuts, a move that would chiefly benefit households making more than $320,000 annually.
“If Washington insists on handing billionaires another tax break, we will ensure some of that windfall comes back to the people of Connecticut to help deal with the massive federal cuts we anticipate,” Looney said.
Changing CT’s savings habits
The finance committee also advanced another proposal likely to spark a showdown with Lamont. The group endorsed changes to the series of budget caps Connecticut has followed since 2017 that would set aside $700 million to mitigate the anticipated loss in federal aid.
These “fiscal guardrails,” as supporters call them, have generated annual surpluses of $1.8 billion in their first seven years. Another $1.8 billion cushion is projected for the current year.
These surpluses represent 8% of the General Fund, a significant share that critics say has leached too many dollars from education, health care, child care and other core programs.
Several groups, from across the political spectrum, are expected to press Lamont on this.
“Growing economic uncertainties mean that it is harder than ever for households with children to keep a solid footing in their budget,” said Lisa Tepper Bates, president of the United Way’s Connecticut chapter, which reported last fall that about 40% of Connecticut families lived in poverty in 2022. “Moving this forward shows to families that their elected leaders are hearing them, feel their pain, and are willing to take proven, common-sense measures to help our families and their kids.”
Norma Martinez HoSang, director of CT For All, a coalition of more than 60 faith, labor and other civic organizations, said “Connecticut’s families are holding their breath as they wait to see whether or not our state elected officials prioritize working families over the profits of billionaires and corporations.”
The Yankee Institute for Public Policy, a conservative policy group, launched an online petition this spring urging the governor to leave the budget controls alone.
Bill to lower electric bills advances, plan to block tax delinquents from driving dropped
In other action Wednesday, the finance committee voted overwhelmingly to advance a proposal by Fonfara to borrow $2.4 billion over the next three years to pay for the costs associated with the controversial public benefits charge that appears on customers’ electric bills. That charge would be removed during those three years, cutting bills by an average of 20%.
The vote followed a lengthy closed-door caucus of majority Democrats on the committee. Once the meeting resumed, Fonfara alluded somewhat to the source of the delay: he said he had been called a “disrupter” earlier by one of his colleagues, state Sen. Norm Needleman, D-Essex, who serves as co-chair of the Energy and Technology Committee. Last week, Needleman voiced his frustration that Fonfara’s bill had not appeared before that committee, given its focus on electricity costs.
While Fonfara said he agreed with the label, he said that his legislation, Senate Bill 1560, “was in no way intended to step on anyone’s toes or to be disrespectful.”
Needleman himself said that he appreciated Fonfara’s knowledge and work on the issue Wednesday and voted to advance the bill with the understanding that it would be referred to the Energy and Technology Committee for further deliberations.
The committee also abandoned a proposal to block tax delinquents from renewing their driver’s licenses or motor vehicle registrations until all obligations are met. Those who lost their license could apply for a special permit to drive, for limited hours, to attend work or receive medical treatment.
That measure also would have allowed the state to use private collection agencies to pursue tax delinquents.
The Internal Revenue Service’s Taxpayer Advocate Service reported to Congress in 2017 that about 44% of all taxpayers targeted by private collection agencies on behalf of the IRS “are at risk of economic hardship.” And the median income of households targeted by collection agencies that later entered into installment agreements to repay their debt was $38,021 per year.
Hospital tax changes hinge on federal budget debate
The committee also endorsed Lamont’s plan to increase the hospital provider tax by $140 million per year, which also involves boosting state payments back to the industry by a matching amount.
This back-and-forth arrangement, which has been encouraged by the federal government and employed by most states, would enable Connecticut to qualify for an extra $94 million in federal Medicaid payments.
But with Congress looking to slash $880 billion in spending — which analysts say couldn’t be achieved without deep reductions to Medicaid — Lamont’s proposal may now wait in political limbo for months until the fiscal picture from Washington becomes clear.
CT Mirror staff writer John Moritz contributed to this report.
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