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January 26, 2024

Progressive policy group urges CT to expand tax relief for families

KEITH PHANEUF / CT MIRROR Connecticut Voices for Children Executive Director Emily Byrne
By Keith M. Phaneuf, CT Mirror

A progressive policy group urged state legislators Thursday to stem worsening income and wealth inequality — particularly among racial and ethnic lines — by establishing a new state income tax credit for households with children.

The New Haven-based Connecticut Voices for Children offered three options for per-child credits ranging from $500 to $600. And while the plans would cost state government roughly $300 million per year, Voices’ analysts also suggested the tax relief could be phased in gradually, over as many as five years.

And while Gov. Ned Lamont and legislators have enacted tax cuts over the past two sessions that will save taxpayers — primarily middle-class and low-income households — close to $800 million per year, too many families here are losing ground, the policy group argued.

“Most folks want to skip over talking about the hard work and go straight to celebrating the win,” Emily Byrne, Connecticut Voices’ executive director, said to open the think-tank’s 23rd Tax & Budget Forum, an event held each winter to prepare state policymakers for the upcoming legislative session. “Most of us want to talk about the positive rather than the negative. And as a result, we’ve been trained to believe societally that a handful of policies here and there solve for really complicated problems.”

“But the truth is the systemic issues that too many of us experienced are centuries old,” Byrne added. “And so most people fear change, and most lawmaking operates on election cycles. The numerous policies required to get to the actual solution of any one particular issue takes time.”

Entrenched income and wealth inequality

Connecticut long has been home to some of the most extreme income and wealth inequality in the nation.

And according to Patrick O’Brien, Connecticut Voices’ research and policy director, inflation-adjusted income declined in Connecticut from 2019 to 2022 for low- and middle-income households.

In Connecticut in 2022, the median white non-Hispanic household had an income of $99,000 compared to $62,500 for the median Black non-Hispanic household, meaning the median Black household earned $0.63 for each dollar in income for the median white household. The median Hispanic household had an income of $60,500, equivalent to $0.61 for each dollar in income for the median white non-Hispanic household.

From 2019 through 2022, real household income in the U.S. decreased on average by 3.4% for low-income households and by 1% for middle-income households; in Connecticut, it decreased on average by 0.7% for low-income households and by 3.2% for middle-income households — a problem driven primarily due to “the historic rise in the cost of living.”

The Consumer Price Index rose 15.6% from December 2019 to December 2022, a three-year jump unmatched since the 1980s, according to O’Brien.

Citing U.S. Census Bureau and IRS data, O’Brien said Connecticut’s top 1% of earners averaged $3.4 million in 2022, 38.4 times greater than the $88,900 made by the median household.

By comparison, the top 1% nationally earned slightly less than $2.1 million. This was 27.6 times the $74,800 earned by the median household.

And because of historical discrimination, segregation, unequal access to quality education and job opportunities, Connecticut also has “substantial racial and ethnic income gaps,” Connecticut Voices’ analysts reported.

In 2022, the median white, non-Hispanic household earned $99,000, compared to the $62,500 median for Blacks and $60,500 for Hispanics.

An estimated 10.1% of the state’s population lived in poverty in 2022, including 11.1% of its children — about 82,000, O’Brien said. The latter figure represents a dramatic increase, up from 3.8% of children in 2021, he said.

Analysts also estimated that while about 5.1% of white children lived in poverty in 2022, the ratio climbs to 20% for Black children and 23.1% for Hispanic youth.

The numbers also are daunting when it comes to wealth, a measure of total net worth — savings, investments and other holdings — minus debt.

For the top 1%, average wealth between 2017 and 2021 totaled $48.3 million, or 244.1 times the $197,900 of the median household. The poorest 10% of Connecticut had negative wealth, averaging $1,800 of debt.

Nationally over the same period, the top 1% held $30.2 million or 225.7 times the $133,800 held by the median family. The poorest 10% nationally also had negative wealth, owing an average of $3,700.

Many states offer a child-related tax relief

Connecticut experimented with a child tax credit two years ago, offering a one-time rebate of $250 per child to low- and middle-income households.

Connecticut Voices’ analysts said a $500 or $600 credit would be particularly effective if most or all of that credit were refundable.

That means that even if a household earns so little it has no state tax liability to apply the credit to, it still could have as much as $500 to $600 per child added to its refund.

Citing U.S. Department of Agriculture data, Connecticut Voices reported it costs a middle-income family, on average, $18,390 per year to raise a child in a Northeastern state.

Full-time child care alone costs between $12,630 and $19,180 per year in Connecticut, analysts wrote.

And of the 40 states that impose a broad-based personal income tax, Connecticut is the only one that does not adjust taxes owed for the number of children or child care expenses a household faces.

But Lamont and state legislators aren’t expected to enact significant tax relief in the upcoming regular General Assembly session, which launches Feb. 7.

Lawmakers are more focused this year on finding additional resources for several priorities, including public colleges and universities; social services delivered by nonprofit agencies; nursing homes; improved Medicaid rates for physicians and other providers; and early childhood development.

Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee, estimated her panel is facing $600 million of requests for new funding on top of the preliminary $26 billion budget lawmakers approved last June for the fiscal year that begins July 1.

Chris Collibee, Lamont’s budget spokesman, said the administration does support efforts of Connecticut’s congressional delegation to expand the existing federal child tax credit. But Connecticut already has taken significant steps to assist families, Collibee said. 

“Less than a year ago, the state passed the largest income tax cut in state history, which includes an increase in the Earned Income Tax Credit” that is aimed specifically at the working poor, he said,

Collibee added that about 95% of those that benefit from the EITC are families with children, and because of the state’s already progressive income tax system, most households earning less than $50,000 per year effectively pay no income taxes.

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