Lawmakers propose sweeping tax relief, especially in high poverty areas

The tax exemption would apply to anyone making less than $125,000 a year (or couples making under $200,000) in parts of Bridgeport, Waterbury, New Haven, Hartford and several other cities that have 30% or more residents living below the federal poverty level.

John Craven

Apr 19, 2023, 10:17 PM

Updated 401 days ago

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Just after Tax Day, Connecticut lawmakers unveiled a sweeping tax cut plan that could eliminate income taxes altogether for thousands of filers -- especially for those living in high poverty parts of Bridgeport and other cities.
NO INCOME TAX FOR CERTAIN NEIGHBORHOODS
On Wednesday, a key budget panel made significant changes to Gov. Ned Lamont's proposal – including a new plan to exempt some residents of "high poverty" census tracts from state income tax for three years.
The tax exemption would apply to anyone making less than $125,000 a year (or couples making under $200,000) in parts of Bridgeport, Waterbury, New Haven, Hartford and several other cities that have 30% or more residents living below the federal poverty level. The pilot program would be funded by state bond borrowing.
Proponents on the Legislature's tax-writing Finance Committee said the exemption is designed to encourage more people to live in neglected neighborhoods. As income levels rise, census tracts would be phased out of the program.
INCOME TAX CUT
All filers would see less money taken out of their paychecks, under the first income tax cut in almost three decades.
The Democratic-led panel's budget has nearly identical income tax cuts on the bottom two tax brackets, but it eliminates relief for the wealthy. Under Lamont's proposal, single filers can make up to $540,000 per year (and joint filers around $1 million) and still receive some form of tax relief. The Finance Committee budget drops the income cap to $200,000, or double that for couples.
On Monday, Lamont said he agrees with targeting tax cuts to middle-class and lower-income filers, but said even wealthier filers should see some relief.
"It's not much for people earning, say, 250,000 – but it's enough to be able to say, 'I want to stay here in Connecticut. I want to grow my company here in Connecticut," said Lamont. "They're absolutely right about that, but it is directional. It sends a message to companies that are wondering whether they should expand in Connecticut or somewhere else."
EXPANDED TAX BREAKS FOR WORKING POOR
Lawmakers are also offering a bigger tax break for the working poor than the governor. Lamont's proposal expands the Earned Income Tax Credit to 40% of the federal credit, but legislative budget-writers want to bump it up 45%. The governor's office estimates his proposal would completely eliminate state income taxes for anyone making less than $50,000.
CHILD TAX CREDIT
But progressive lawmakers didn't get everything they wanted. The Finance Committee did not include a permanent child tax credit. Last year, parents received up to $750 rebate checks.
The governor doesn't support the idea, either.
"Only if I take from something else," said Lamont. "We have a pretty tight budget. Now you have to make choices. You have to set priorities."
Both plans offer relief for small businesses, including tax breaks for employers who offer child care. Connecticut has a severe shortage.
RELIEF WILL HAVE TO WAIT
These tax cuts won't take effect until the 2024 tax year. Republican leaders have argued they should start right away, but tax officials say that would be logistically difficult.
MORE SPENDING?
Meantime, backlash is growing to the lean – and some call, "mean" – spending proposal that the Legislature's Appropriations Committee approved on Tuesday. Critics say the plan shortchanges nonprofits that provide critical services.
Top Democrats suggested changes are coming, but did not commit to working around the state's rigid spending cap.
"As we move forward, we will be looking at finding ways to bolster funding in a number of critical areas – including nonprofits, public schools, higher education, health care and child care workers, paraprofessionals and group homes – while still protecting the fiscal health of the state and providing residents with historic tax relief," said a joint statement from House Speaker Matt Ritter (D-Hartford) and Senate President Martin Looney (D-New Haven).
Lawmakers will spend the next six weeks negotiating a final budget with Gov. Lamont.


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