Lawmakers close in on new tax relief for families with kids

The Legislature Finance Committee took the first step Tuesday toward creating a new state income tax credit for low- and middle-income families with children.

The Democratic-controlled panel technically approved a bill that would immediately create a new $600 per child credit. But Rep. Sean Scanlon, the committee’s co-chair, quickly clarified that the proposal would be revised on Wednesday to comply with federal restrictions on the tax relief Connecticut can offer while it accepts federal emergency relief assistance. pandemic.

Scanlon is expected to announce on Wednesday that the credit will be phased in starting two years after the federal relief expires.

The finance panel, which faces a 5 p.m. Thursday deadline to finish proposing bills for the 2022 legislative session, also approved a new income tax cut for working poor families. from Connecticut. This relief represents an average of approximately $300 more for more than 185,000 families earning less than $58,000 per year.

The child tax credit that Scanlon has been fighting for since last year “is more than an aspiration,” the Guilford Democrat said at Wednesday’s meeting. “It will be a reality.”

Committees often pass bills that members know are likely to be changed or even rejected.

But Rep. Holly Cheeseman of East Lyme, ranked House Republican on the finance panel, said she didn’t want to dangle relief in front of Connecticutans and then not deliver.

“At the end of the day, the only thing that matters to the people of Connecticut is being able to make it happen?” said Cheeseman, who voted for the measure. “I too aspire to do great things. Let’s make it work.

The bill, which passed by a 2-to-1 margin with bipartisan support, still faces challenges in its current form due to U.S. Treasury rules governing states that have accepted federal aid in the event pandemic through the American Rescue Plan Act.

The state government here secured $3 billion in ARPA funds and additional billions went to Connecticut municipalities and school districts.

States are supposed to use these funds to restore services affected by the pandemic, not to cut taxes. Gov. Ned Lamont’s administration has said it believes the state cannot cut next-year General Fund tax revenue by more than $200 million without breaking Treasury rules.

“You can’t do it all,” the governor said Tuesday, adding lawmakers will have to make tough choices.

Lamont is pushing for the legislature to cut middle-class income taxes this year in a different way — by increasing a credit from $200 to $300 that offsets a portion of municipal property tax bills. The governor must do this to fulfill a promise he made during his 2018 election campaign.

That relief would cost about $120 million a year, and the tax relief for the working poor — which House and Senate Democratic majority leaders have promised to pass this year — costs an additional $42 million.

This does not leave much room for the child tax credit, which would bring in $300 million annually for taxpayers.

Scanlon did not provide details on Tuesday, but he repeatedly said aid could begin a year or two later, after pandemic aid expires.

The finance panel is expected to be asked on Wednesday to pass a broader tax plan that includes the relief promised by Lamont, tax relief for the working poor and a child tax credit that would start at $300 per child in 2024, then increase in the years to come. .

To help pay for it and to support a second major initiative, the committee recommends that Connecticut moderate, modestly, the large budget surpluses it has accumulated in recent years.

Sen. John Fonfara, D-Hartford, the committee’s other co-chair, proposed that Connecticut suspend its “revenue cap.”

Designed to prevent lawmakers from creating budgets with no room for error, this cap was created in 2017 and states that appropriations cannot exceed 99% of projected revenue for that fiscal year. It’s a built-in cushion of $275 million.

By 2024, the revenue cap would reach 98.5% and create a cushion of $321 million.

About half of those funds would be used to support the Child Tax Credit in two years.

The other half would be spent on early childhood development, which Fonfara says is key to closing the education achievement gap and fostering greater economic opportunity in poor urban centers.

“Too many children are being denied those opportunities that most people in Connecticut enjoy, great opportunities,” he said.

“If we don’t invest in these kids,” added Sen. Patricia “Billie” Miller, D-Stamford, “our schools are going to be a pipeline to prisons.”

Fonfara also noted that a second, larger savings program for the state budget – also created in 2017 – would remain in place.

Called the “volatility adjustment,” it prohibits lawmakers from spending any portion of state tax revenue related to capital gains and other investment income.

The volatility adjustment has never saved the state less than $500 million since its inception, and this year will likely provide a cushion of over $1 billion.

But as the Finance Committee on Tuesday approved lifting the revenue cap, moderate Democrats and Republicans said they would fight to keep the provision out of the next state budget.

“I’m very supportive of our state’s most valuable commodity,” Rep. Kerry Wood, R-Rocky Hill, said. But, she added, Connecticut must do so without violating a cap that has helped end years of deficits, build a healthy reserve and accelerate retirement debt reduction.

In other business on Tuesday, the Finance Committee also approved bills that:

  • Require the Capital Region Development Authority to study the possible redevelopment of the Brainard Airport property in Hartford.
  • Make heating, cooling, and other air quality control projects in municipal schools eligible for assistance under the state’s school construction grant program.
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