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The General Assembly faces the daunting task of balancing state finances next spring absent the huge federal pandemic grants Connecticut has enjoyed since 2021.
But with state government amassing billions in reserves, breaking one savings record after another, legislators and Gov. Ned Lamont could be forced to carve out more tax relief for poor and middle-class families.
Though the regular 2025 session doesn’t start until Jan. 8, reform advocates already are zeroing in on a popular concept from the past few years: a state income tax credit for households with children.
“It’s an economically vulnerable time for families when they are trying to raise young children,” said Lisa Tepper Bates, president and CEO of the United Way of Connecticut, which already has gathered more than 500 signatures through an online petition insisting upon a new Connecticut child tax credit. The goal is to secure more than 5,000 names by early January.
Many advocates favor the credit model proposed by state Comptroller Sean Scanlon back in 2021 when he was a state representative from Guilford. Scanlon’s proposal calls for a $600-per-child credit up to $1,800 per household. He also favored income restrictions to limit the relief to poor and middle-class families.
Bates and many other advocates also say the credit should be refundable, meaning that even if a household earns so little it has no state tax liability to apply the credit to, it still would have $600 per child added to its refund. They note that inflation, low wage growth and other problems leave nearly four out of 10 Connecticut families struggling to pay bills.
The United Way developed its own poverty assessment to counter the Federal Poverty Level, a nearly 60-year-old metric based largely on the cost of a basic food diet and one that critics say grossly underestimates hardship. A family of four earning more than $26,500 in 2021 was considered above the poverty line.
The United Way’s ALICE projection — an acronym for Asset-Limited Income-Constrained Employed households — found that same family of four needed to earn $106,632 in 2021 to cover a basic survival budget that included not only groceries but child care, transportation, housing, utilities and at least a smart phone — assuming the household lacked a computer.
“As people across the country make the hard decision about where to root and grow, there’s never been a more important time to signal to families to choose Connecticut,” said Emily Byrne, executive director of Connecticut Voices for Children, a progressive policy group that also has endorsed a child tax credit. “Creating a refundable state-level child tax credit, coupled with universal access to high-quality child care, is a great start, and families will also need exponential action on the policies that provide more affordable options for housing as well as health care.”
Bates, Byrne and other advocates for a child tax credit also point to state government’s own tax fairness studies, which show Connecticut’s combined state and municipal tax system falls much more heavily on the poor and middle class than it does on the wealthy.
Lamont often cites the 2023 state income tax cut he signed as the largest in Connecticut history. But an analysis from Connecticut Voices showed that — even after that relief is applied — the share of income the poorest 10% of households effectively lost to state and municipal taxes more than quadrupled what the richest 10% paid.
Still, analysts have estimated the type of child tax credit Bates and Byrnes support would cost the state about $300 million annually, an amount equal to slightly more than 1% of the General Fund. But the $26 billion state budget is dominated by fixed costs, and 1% is not necessarily small.
Further complicating matters, legislators and Gov. Ned Lamont used nearly $700 million in temporary funds — from federal pandemic grants and past budget surpluses — to bolster programs this fiscal year. Those funds won’t be available next spring when officials begin crafting a new biennial budget for the 2025-26 and 2026-27 fiscal years.
Chris Collibee, Lamont’s budget spokesman, wouldn’t rule out tax relief in the next budget. “Gov. Lamont is willing to listen to ideas that reduce the burden on taxpayers,” he said.
But Collibee added the administration also will be assessing the cost of maintaining current programs and services, revenue trends, which include the vanishing federal pandemic grants, and limits imposed by the state spending cap and other budget controls.
Rep. Holly Cheeseman of East Lyme, ranking House Republican on the tax-writing Finance, Revenue and Bonding Committee, said many in the GOP want to deliver more tax relief, but there are big fiscal challenges that must be solved first.
“I don’t want to make commitments we’re not going to be able to keep down the road,” she said.
Besides dealing with expiring federal grants, Connecticut also must consider that households with kids aren’t the only ones struggling. Many of the state’s elderly residents also need help covering rent or being able to retire in the house they own.
“There are plenty of people who are suffering in this state who don’t have children,” she added.
But advocates for a new child tax credit say Connecticut has the resources to cover the loss of federal pandemic relief and deliver tax cuts to struggling families.
The note that Connecticut has imposed very aggressive savings programs since 2017 that have allowed state government to amass a record-setting $4.1 billion budget reserve, or rainy day fund, equal to 18% of the General Fund.
At the same time, Connecticut also has used nearly $7.7 billion in surpluses to shrink unfunded pension obligations and is set to deposit another $850 million in its pension systems this fall.
The state entered the year, though, with more than $37 billion in unfunded pension obligations, an enormous mess created by more than 70 years of improper savings between 1939 and 2010.
And those savings programs, which supporters call “fiscal guardrails,” are expected to force legislators to save nearly $1.2 billion in income and business tax revenues next fiscal year. It is only supposed to target “volatile” tax receipts — revenues that could generate big numbers one year and none the next.
Lamont has been wary to consider any major modifications to this system. But critics say the program is too aggressive, noting it has captured an average of $1.4 billion annually over its first seven years and never less than $530 million in a single year.
Rep. Josh Elliott, D-Hamden, founder of the House Tax Equity Caucus, is working with a coalition of more than 60 grassroots faith, labor and other civic organizations to rally support for a child tax credit.
The Hamden lawmaker said more legislators are realizing the state can invest in core programs, deliver tax relief and still pay down debt by taking a more balanced approach.
“I think that there will be a desire to have more of a grand bargain next year,” Elliott said.
Rep. Maria Horn, D-Salisbury, co-chairwoman of the finance committee, said she also favors finding ways to expand state tax relief, particularly for the poor and middle class, and wouldn’t rule out adjusting savings efforts somewhat to make that possible.
“We are in a different position with respect to the ‘guardrails’ because we have filled that rainy day fund [and] we have made some payments to our unfunded liabilities that have made a material difference,” she said. “I do look forward to a conversation about that.”
And Norma Martinez-HoSang, director of CT for All, the coalition working with the Tax Equity Caucus, said unless Connecticut both pursues more tax relief and preserves and expands core programs, households hurt by the pandemic that are struggling won’t rebound.
“We often describe our budget as a set of priorities for our state,” she said. “But with worsening childhood poverty on the horizon in the face of billions in untouched surplus, Gov. Lamont cannot continue to say that the children and families of Connecticut are a priority. Creating a state with true reproductive justice means making the fiscal investment in policies like the child tax credit so that families can provide their children with the basic needs.”
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