Gov. Ned Lamont announced a proposal to lower income taxes for joint filers earning less than $100,000 per year, decreasing the tax rate from 5 percent to 4.5 percent for earnings between $50,000 and $100,000 and decreasing the rate from 3 to 2 percent for the first 20,000 for joint filers. Those earning thresholds are halved for single filers.
Combined with Lamont’s earlier proposal to permanently increased the Earned Income Tax Credit (EITC), the governor says that families earning less than $50,000 per year will essentially pay no income tax and people earning less than $40,000 per year will receive a rebate.
“This is an important announcement,” Lamont said during a press conference in East Hartford, “this is the biggest tax cut since the dawn of the income tax in the state of Connecticut. This is an income tax cut that is really going to be overwhelmingly focused on our working families, essential workers. It starts with the fact that no families earning no more than $50,000 will have any income tax obligation to the State of Connecticut.”
The reductions are expected to save upwards of 1.1 million tax filers a total of $440 million per year. Some joint filers could see a $600 reduction, while single filers could see $300 in savings, according to the governor’s press release, part of a slew of tax reductions Lamont has proposed leading up to his budget release this week.
“This is a broad-based tax cut for the people of Connecticut,” said Lt. Gov. Susan Bysiewicz. “It comes at a good time, a time when energy prices are going up and families are really feeling the pressure of inflation when they go to the grocery store.”
“When have you ever had a discussion about which taxes to cut instead of lurching from fiscal crisis to fiscal crisis over the last forty years?” said Department of Revenue Services Commissioner Mark Boughton.
The announcements come as Connecticut has continued to enjoy budget surpluses over the last four years, as budget guardrails passed in 2017 combined with a windfall of federal COVID dollars and increased income, sales and business taxes maxed out Connecticut’s budget reserve fund and paid down billions in pension debt, with more revenue left to spare.
Bysiewicz indicated that savings generated by the pension paydown will essentially fund the tax cuts through reduced annual payments toward the pension debt.
According to Connecticut Comptroller Sean Scanlon, Connecticut is looking at a $1.3 billion budget surplus for fiscal year 2023, the same as fiscal year 2022.
Earlier this year, Lamont also announced reducing the tax burden on businesses through the pass-through entity tax – a tax workaround meant to shield many businesses from caps on the federal State and Local Tax (SALT) tax deduction through a tax credit, which was supposed to be revenue neutral.
Lamont and Democrats in the General Assembly reduced that tax credit in 2018, amounting to what business leaders called a tax increase on small businesses. Now, the governor is proposing to return the tax credit to its original level, a move supported the Connecticut Business and Industry Association (CBIA).
Lamont has also proposed a plan to permanently increase the Earned Income Tax Credit for low-income families, raising the rate from 30.5 percent to 40 percent, a move projected to affect roughly 211,000 families and cost $44.6 million. The EITC rate was adjusted in 2020 from 23 percent to 30.5 percent, partially in response to the pandemic.
Despite calls from some in the legislature to ease the fiscal restraints enacted in the 2017 budget, Lamont and Scanlon have continually urged the legislature to maintain the guardrails that they say have led to Connecticut’s surpluses.
“The fiscal guardrails we have in place in Connecticut have empowered us to weather recent economically volatility,” Scanlon said in a press release regarding the budget surplus. “This is not the time to disregard the fiscal discipline measures that have put us on track to have a fifth consecutive budget surplus; instead, I urge the legislature to reinforce them.”
Ranking member of the Finance, Revenue and Bonding Committee Rep. Holly Cheeseman, R-East Lyme, said she is pleased the governor is offering tax cuts that Republicans tried to provide last year, but warned of proposals in the legislature that could undermine Connecticut’s economic growth.
“We have continually said that the working families of Connecticut deserve some sort of tax relief amidst the high inflation they are facing,” Cheeseman said in a press statement. “With that in mind, we must also make sure the majority party in the legislature doesn’t undermine any tax relief proposal by pushing another round of job-killing legislation that would harm Connecticut’s economic and employment growth.”
“I want to cut taxes for the middle class,” Lamont said in a press statement. “Today, Connecticut’s fiscal health is stronger than it’s been in decades. Considering the state’s strong financial position, it’s time to provide some tax relief.”
**This article was updated with comment from Rep. Holly Cheeseman**
