Child tax credit, additional hospitality funds among ideas by lawmakers seeking to help CT families, restaurants

Back • Publication Date: February 27, 2023 • Fiscal & Economics

With the state rolling up surpluses in recent years and another surplus of $1.3 billion projected this year, legislators and advocates have been under increasing pressure to offer tax cuts. The state generated a record-breaking surplus of $4.3 billion last year, and billions of dollars have been set aside in recent years to pay down the state’s long-underfunded pension debt.

Gov. Ned Lamont has called for cutting the state income tax as the centerpiece of his fiscal proposals, but legislators have a range of ideas as they move toward crafting the overall budget in the coming months.

Child tax credit

State comptroller Sean Scanlon, the chief proponent of the child tax rebate when he served last year in the legislature, called Monday for making it permanent. He also called for permanently increasing the earned income tax credit to 40% of the federal level, which is supported by Lamont.

“These do work,’’ Scanlon said of the proposals. “They do reduce child poverty in America.’’

At the federal level, some families received a tax credit of $3,600 per child for one year, but that level has expired along with many other programs from the coronavirus pandemic. If Congress fails to take action, the federal tax credit that is currently $2,000 would fall to $1,000 per child per year when President Donald Trump’s tax cuts expire in 2025.

Lamont’s plan calls for imposing no state income tax on a family of four with two children who qualify for the earned income tax credit and earns up to $50,000 per year. The state child credit proposal calls for $250 per child.

“A medley of those cuts’’ in various tax categories “will do great things to make the state more affordable,’’ Scanlon said. “When states have growth, it’s because they have young people moving there and staying there. … There’s no single one issue that can solve everybody’s problem in Connecticut.‘’

With two young children, Scanlon said he has personal experience on the issue. He noted that a Hamden resident told him that impact was direct because the rebate check had allowed his son to go back to music camp, which he had not done in the previous three years due to the state’s high costs.

The state has pockets of poverty across the state, and even Greenwich and Fairfield have families who receive the earned income tax credit, said Senate President Pro Tem Martin Looney, a New Haven Democrat who is a key proponent.

At the same time, Rep. Holly Cheeseman, the ranking House Republican on the committee, said she was also concerned about the tax burden on senior citizens who do not have dependent children and would not qualify for the credit. She said that the legislature must be concerned about all residents and awarding tax credits “without addressing the other things that drive up costs is a devil’s argument.’’

With rising inflation and child care costs, many families are struggling to make ends meet, advocates said. SInce the earned income tax credit ends at $60,000 per family, other families who are earning above that level are still struggling because they do not qualify for the credit.

While rates vary depending on the number of hours needed, child care can cost $17,000 to $20,000 per year as Connecticut is among the most expensive states, officials said.

A related problem is that child care workers are severely underpaid, said Rep. Bobby Sanchez, a New Britain Democrat.

“Early childhood is just not respected,’’ Sanchez said.

Mansion tax

While lawmakers are calling for tax cuts, some advocates are opposed to tax increases that are being proposed at the same time. One of those is the creation of a mansion tax that would impose a statewide property tax of 1 mill on residential properties valued at more than $1.5 million and 2 mills on homes worth more than $2 million. The real estate conveyance tax rate is already higher on more expensive homes than on lower-end houses.

“It would not be burdensome at all’’ to the wealthy home owners who live in mansions, Looney said, adding that some residents in New Haven are currently paying $25,000 per year in property taxes on their home.

But cities and towns are strongly opposed to the idea.

“Once the state opens the door to collecting revenue via the property tax, what would prohibit the proposed 2 mill tax from going to 3 mills or higher and or lowering the threshold on which it is applied?’’ said Randy Collins of the Connecticut Conference of Municipalities, which is opposing the idea. “Adding 2 mills to high-end homes is not the answer.’’

Betsy Gara, executive director of the Connecticut Council of Small Towns, also opposed the mansion tax, saying that the property tax is a “workhorse’’ for local towns as Connecticut is among the top five states that rely on the property tax.

“In small towns, this is a big issue because they don’t have a large commercial base,’’ Gara said.

But Callie Gale Heilmann, co-chairwoman of Bridgeport Generation Now, said the increased tax would be well spent.

“I am a high-wealth individual, both owning a high-value home in the Black Rock neighborhood of Bridgeport and my husband’s earnings come from the financial sector,’’ Heilmann told legislators. “We would most likely be affected by HB 5673. Although I pay one of the highest mill rates in our state, I would happily pay two mills more if it meant the state was going to take seriously the problem of racial and economic segregation and the chronic underfunding of our public schools. I’m the third generation in my family to graduate from Hartford public high school, a child of Sheff v O’Neill, and I know the amount of money, effort, visionary leadership, and resources it is going to take to undo this morally repugnant system.’’

Timothy Phelan, president of the newly named Connecticut Retail Network, said his group strongly opposes a proposed digital advertising tax that would be shifted and filtered down to local retailers.

“Customers are all over the place — they’re online, they’re at your curbside or they’re in your store,’’ Phelan said. “The timing could not be worse.’’

The tax would be initially imposed on large players like Amazon and Facebook, which Phelan described as “our business partners in many ways.’’

More revenue

Patrick O’Brien, the research and policy director for New Haven-based Connecticut Voices for Children, said that one option for raising money would be hiring more auditors in the state tax department because they generate an average of $2 million per year. If 48 vacant spots were filled, the state could generate $96 million in tax revenues, he said.

“We want more revenue, but the specter of auditors chasing our constituents doesn’t sit well’’ with some legislators, said Sen. John Fonfara, the committee’s co-chairman.

While Lamont’s plan has been touted as targeting the middle class, O’Brien noted that families earning $500,000 per year would still receive a tax cut of about $340 per year.

“Many high-income families are going to benefit from this proposal,’’ O’Brien said.

Separately, Looney favors an increase in the two highest state income tax rates for the wealthiest taxpayers, which at 6.9% and 6.99% are below the level of some other states.

“Our top rates are still relatively low,’’ Looney said.

One of the differences is that Connecticut income taxes are based on the federal adjusted gross income, rather than taxable income as in some other states – which is a lower number that is derived after deductions.

Republicans and Democrats debated back and forth over whether there is a “migration myth’’ that raising taxes causes millionaires and billionaires to head to low-tax states like Florida. The two sides could not agree, saying they need more detailed data from the state tax department that has not been released.

After being battered by the pandemic, the state’s restaurants are calling for a new Connecticut Hospitality Fund to help the industry by distributing the additional 1% tax on meals that last year generated $90 million statewide and could generate $95 million in the current fiscal year.

In a huge blow to the industry, nearly 1,000 Connecticut restaurants have closed their doors since the pandemic began — and the industry has lost 22,000 jobs, said Scott Dolch, leader of the state restaurant association. The proposal calls for sending 30% of the money to the state tourism office, 20% to develop a better workforce and train bartenders and chefs, and 50% for the towns, based on how much they generate from restaurants. Restaurants represent a $9.6 billion industry in Connecticut with nearly 10% of the state’s workforce, he said.

Dolch said the state had been spending $11 million per year on tourism, but the number is expected to drop to $4 million.

Rep. Stephen Meskers, a Greenwich Democrat, said that other states are spending far more money on promoting tourism, which directly helps restaurants. He said, however, that diverting $90 million away from the state’s general fund each year could create problems in balancing the state’s $50.5 billion, two-year budget.

“I believe Rhode Island is spending twice what we are spending,’’ Meskers said of tourism. “The city of New York is spending $30 million.’’

But Rep. John Piscopo, one of the longest-serving legislators, said he has concerns about the idea because it would be off-budget and not subject to the state’s spending cap because the money would be diverted away from the state’s general fund. Lawmakers, however, can restructure the proposal in the coming weeks and months as the overall budget is expected to be completed by early June.

Christopher Keating can be reached at ckeating@courant.com

Authors: Christopher Keating •  Source: Hartford Courant • View