Progressives urge Lamont to make permanent tax relief for the poor

Back • Publication Date: January 12, 2022 • Fiscal & Economics

While Gov. Ned Lamont touted plans Wednesday to share one-time federal COVID relief funds with Connecticut’s working poor, progressive reformers urged him next to secure permanent relief for low- and middle-income families.

But that would require spending the state’s money, not distributing aid from Washington — which the fiscally moderate-to-conservative governor has been wary about since the coronavirus struck Connecticut almost two years ago.

“The reality is a lot of these families were struggling before the pandemic, probably struggling during the pandemic, and they will struggle after the pandemic,” Sen. John Fonfara, D-Hartford said during a midday online press conference with Lamont.

The Democratic governor was touting his plan to share $75 million in expiring federal coronavirus relief funds with nearly 200,000 working poor households in Connecticut — an average of about $375 per household. 

To be eligible, these families had to be employed and qualified in 2020 for the Earned Income Tax Credit, or EITC, on their state income tax returns by earning less than $56,844.

“I think there’s nothing more important than rewarding work,” Lamont said, adding that those who maintained some of the most vital services during the pandemic are among society’s lowest paid.

“Essential workers were sometimes doing the most essential work at the lowest pay, and that is wrong,” he added.

Created in 2011, Connecticut’s Earned Income Tax Credit is one of the state’s chief tools to help its poorest working families stay afloat.

Originally set in value at 30% of the federal EITC, it has been chiseled down gradually since then and stood at 23% in 2021. 

An estimated 198,708 households received the credit, worth an average of $550, through tax returns filed last spring. Advocates say poor families must spend all of this money on basic needs, such as utility bills and groceries, because of Connecticut’s high cost of living.

Lamont’s plan would raise the average EITC benefit, for one time only, to nearly $930 on average, which represents 41.5% of the federal EITC benefit.

“We’re really hoping we can build on that, and not make it a one-time effort,” said Lisa Tepper Bates, president and CEO of the United Way of Connecticut.

The United Way’s ALICE methodology — an acronym for Asset Limited, Income Constrained, Employed households — holds that federal metrics for assessing poverty, particularly in Connecticut, drastically understate the problem.

The U.S. Census Bureau’s Federal Poverty Level for a family of four in Connecticut is $26,500. Only about 11% of state households fall below this threshold.

But the bureau’s metric focuses chiefly on a household’s pre-tax earnings and the adjusted cost of a minimum food diet — originally set in 1963. Key elements like health and child care, transportation, utilities and other housing costs aren’t major factors under the FPL.

According to ALICE, that Connecticut family of four needs to earn $90,660 to cover basic survival needs.

Connecticut Voices for Children, a New Haven-based, progressive policy group, has advocated in recent years for greater relief for low- and middle-income families through the EITC and other state income tax changes.

Emily Byrne, executive director for Connecticut Voices, called Lamont’s plan a “courageous first step,” then noted that U.S. Census data currently shows 22% of renters in the state are behind in payments, and 646,000 adults here are reporting difficulty covering normal household expenses.

The General Assembly’s Finance, Revenue and Bonding Committee proposed last spring boosting the state EITC from 23% to 40% of the federal credit. Legislators and Lamont settled on 30.5% starting with the 2022 tax year in the final adopted budget.

The finance panel had proposed several other tax changes that were scrapped entirely.

Rep. Sean Scanlon, D-Guilford, pushed for a new $600-per-child state income tax credit for households making $200,000 per year or less. To ensure poor households — which often owe little or no state income taxes — still could benefit, Scanlon also proposed making 70% of the credit refundable.

Fonfara, the other co-chairman, recommended two income tax surcharges on the state’s wealthiest households and a new digital media ads levy on major online giants like Google.

The Hartford lawmaker wanted most of the hundreds of millions of dollars in revenue from these tax hikes invested in Connecticut’s poor urban centers to reverse decades of unequal access to education, health care and economic opportunity. The revenues also would ensure tax relief for the poor and middle class could be maintained even after temporary federal fiscal aid tied to the pandemic expires in 2024.

Lamont argued tax hikes would destabilize the economy at the worst possible time. The governor also has steadfastly opposed raising state taxes on Connecticut’s wealthiest households, arguing it would prompt them to flee the state.

Fonfara responded by calling the new state budget “a knee on the neck of the Black community” when the plan was debated on the Senate floor in June.

And since then, state revenue projections only have grown. While Lamont and lawmakers used nearly $1.8 billion in federal COVID relief to help balance state finances across this fiscal year and next, the budget is on pace to close this fiscal year alone nearly $1.9 billion in the black, according to Comptroller Natalie Braswell’s office.

“Income inequality wasn’t created overnight, but it can be significantly reduced with robust anti-poverty measures,” Connecticut AFL-CIO President Ed Hawthorne said at Lamont’s press conference.

The labor leader also encouraged Lamont “to build on this effort” by supporting a new child tax credit, lowering state income tax rates for the poor and middle class and increasing state investments in urban centers.

These initiatives likely would throw state finances out of balance, unless offset by some degree of higher taxes on the state’s top earners.

Lamont has said he is open to some form of state tax relief for low- and middle-income households in the coming legislative session, which begins Feb. 9.

The governor said he prefers to focus on municipal property tax burdens. 

Lamont reneged on a 2018 campaign pledge to pump an extra $400 million per year into low- and middle-income households by expanding the property tax credit by 2021. The administration argued the state could not afford to provide the relief, even though government finances are more robust now than when Lamont made the pledge in 2018.

The governor and the legislature did expand municipal aid by about half that amount in the new state budget adopted last June. 

Still Lamont also said he was hopeful about making the state EITC expansion permanent, though he gave no indication he was willing to consider a broad tax redistribution plan that would affect Connecticut’s wealthy.

“We’re going to have to set some priorities because … the federal money does not go forever. But this is an incredibly important tax cut for working families. … We’re going to do everything we can to keep this going.”

Authors: Keith M. Phaneuf •  Source: Connecticut Mirror • View