CT Finance Panel Endorses Tax Cuts for Poor and Middle Classes and Restaurant Rescue
The Legislature’s Finance, Income and Surety Committee on Thursday approved state income tax cuts for the poor and middle class and a one-time bailout for restaurants, largely funding them with two tax surcharges on the rich and a new levy on digital media advertising.
The Democrat-controlled panel also approved a revenue package that includes a new highway use tax on large commercial trucks and new state and municipal sales taxes on recreational marijuana.
But the package, which represents an overall increase in state taxes of around $ 600 million per year, would also move more than $ 1 billion in revenue outside the spending cap and exploit more than $ 2 billion. from point sources – Republicans said they lack tax transparency. and accountability.
The revenue plan, adopted largely according to party principles, will now be coupled with the expenditure proposal for the next two years which was adopted on Wednesday by the appropriations committee. Together, they form the basis for final negotiations on a new state budget between legislative leaders and Governor Ned Lamont. The two sides hope to reach an agreement before the end of the ordinary legislative session on June 9.
“Our challenge in the aftermath of a devastating health and economic crisis was to put together a budget that responded to the current situation and helped Connecticut businesses and families recover,” said Rep. Sean Scanlon, D- Guilford, Chairman of the House Finance Committee. “With this proposal, I think we did it. … We are putting more money in the pockets of those who need it most right now and investing in policies that will help develop our state.
Major tax relief for the poor and the middle class
Scanlon noted that the package includes one of the largest tax breaks in state history for working-class families, built in part on his proposal for a new income tax credit from the ‘State for families with children. This will provide about $ 150 million in relief over the next fiscal year and $ 300 million in 2022-23, according to the Non-Partisan Bureau of Financial Analysis.
At the same time, the committee’s plan would increase the income tax credit for working poor families from 23% to 40% of the federal working income tax credit, giving these households an estimated $ 77 million. more per year.
Connecticut’s restaurant industry has been among the hardest hit by the pandemic, and the panel approved a one-time bailout for the companies worth nearly $ 50 million.
The state imposed a 1% surtax on restaurant meals in 2019. The measure debated Thursday would allow restaurants to keep income from that surtax – but only for next year.
Democratic lawmakers, who control both the House and the Senate, have admitted since the session began in January that tax breaks for some groups would not occur without imposing tax hikes on others.
Indeed, analysts predict that the state’s finances, unless adjusted, would record a deficit of more than $ 2.5 billion over the next two fiscal years combined.
Asking big, wealthy corporations to pay more
The finance committee’s plan would draw $ 235 million from the state’s rainy days fund, or about $ 117.5 million per year, to help balance the next budget.
It would also allocate $ 1.9 billion of the $ 2.6 billion in direct federal assistance received as part of the latest pandemic relief measure – an average of $ 942 million per year – to meet the deficit in the next budget. Lamont is expected to recommend a plan on Friday to use the rest of the federal funds to expand various human services, education and economic development programs.
To finish balancing the budget and paying for tax breaks, the committee approved several new tax increases. Two of them, intended for wealthy households, would generate a total of $ 760 million per year.
One involves a 2% surtax on capital gains for singles earning more than $ 500,000 a year and couples earning more than $ 1 million.
A second levy for the wealthy was technically referred to as a consumption tax, but it actually functions like another income tax surtax. The basic concept is that households with higher incomes can buy more and therefore should pay a higher sales tax.
The consumption tax, proposed by Sen. John Fonfara, D-Hartford, the committee’s other co-chair, was originally aimed at households earning more than $ 140,000 a year, but the final version approved Wednesday only applies ” to people earning at least 500,000 USD per year. year with tax rates ranging from 0.7% to 1.5%. For example, a person earning $ 500,000 per year would be taxed at 0.7% and pay $ 3,500.
Lamont, a financially moderate Democrat, argued that taxing the wealthy would keep them away from Connecticut, a point echoed by several Republicans at Thursday’s committee meeting.
But Scanlon noted that while some segments of the economy were crushed during the pandemic, the stock market – as a whole – has exploded and the rich have generally done very well.
“I don’t penalize them for that, I don’t demonize them for that,” Scanlon added. “But… many of us still suffer.”
The committee also approved a new digital advertising tax that is expected to generate between $ 150 million and $ 162 million per year from online giants like Google and Facebook.
GOP: Plan threatens budget transparency and stability
But as Republicans balked at the tax hikes, warning they would stifle economic growth statewide at the worst possible time, many objected even more strongly to how the revenues would be used.
The package includes a Fonfara proposal that would direct money from multiple sources, including the state’s earned income tax credit, digital ad tax, and consumption tax to a new ” Connecticut Equitable Investment Fund ”which would be dedicated to troubled municipalities in Connecticut.
But Republicans noted that nearly $ 1 billion would be removed from the state budget’s spending cap limits and would be largely overseen by a nine-member council made up mostly of state officials.
“It’s such an incredible disappointment that I can hardly describe,” said Rep. Laura Devlin, R-Fairfield, who said the lack of transparency and oversight over huge amounts of taxpayer dollars is potentially a major setback. in relation to the tax reforms adopted by both parties. Four years ago. “It was this out of control spending that pushed our state down a truly horrible path.”
“It is not respectful to the citizens of our state,” added Representative Terrie Wood, R-Darien. “It leaves me speechless to be honest.”
But Fonfara has repeatedly argued that Connecticut, for too many years, has ignored “this glaring inequality, this incredibly regressive burden.” [placed] on the less able of our communities. “
Other elements of the recipe package adopted on Thursday include:
- A new road use right on large commercial trucks, which is expected to generate $ 45 million in 2022-2023 for the Special Budget Transport Fund.
- Suspend a previously approved plan to eliminate the 10% corporate tax surtax. It will cost Connecticut businesses $ 80 million in the next fiscal year and $ 50 million in 2022-23.
- Maintain a restriction that prevents most childless couples from claiming the $ 200 property tax credit as part of state income tax. The state has barred households without dependents or the elderly from accessing credit, but it was due to expire in 2021. It will cost low- and middle-income couples $ 53 million a year.
- And allow online lottery sales, which would generate nearly $ 19 million per year for the state.
On Thursday, the finance committee also approved:
– A separate measure taxing the sale of recreational marijuana that would establish a 20 percent state sales tax and a 3 percent municipal sales tax.
If the legislature voted later this spring to legalize marijuana sales, the state tax would generate $ 116 million per year. Municipalities that choose to allow the sale of recreational marijuana within their borders would receive approximately $ 18 million per year.
– A bipartisan plan to preserve Connecticut’s debt-saddled unemployment trust fund that would cut benefits for workers and demand more from the business community as a whole. But the deal, which has been endorsed by the major coalitions of business and workers, would actually reduce unemployment taxes from 2024 on about three-quarters of all businesses. However, those who laid off large numbers of workers would pay more.
Connecticut has borrowed about $ 700 million from the federal government since the pandemic began to cover the costs of unemployment benefits and if projections hold, that debt could exceed $ 1 billion before the majority of its population is vaccinated .
– A new two-year bond package. Committee approved general bond of $ 1.87 billion [G.O.] obligations for fiscal year 2021-2022 and $ 1.74 billion for 2022-2023. GO bonds, which are repaid with income from the general budget fund, are the primary tool used to finance municipal school construction, economic development initiatives, capital projects at public universities and colleges, and renovation of state buildings. The program also includes $ 837 million in transportation bonding and $ 281 million in funding for drinking water projects in the first year of the new biennium and $ 930 million and $ 237 million, respectively, the second.