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HARTFORD — Gov. Ned Lamont said he was “disappointed” by a tax plan approved by lawmakers that would cap tax cuts included in his budget, and open a workaround to five-year-old spending guardrails that he said were crucial to the state’s fiscal health.
Lawmakers on the Finance, Revenue and Bonding Committee voted 31-20 to advance a plan that expanded a low-income tax credit, while limiting an income tax cut to people earning less than $200,000 – with three Democrats joining the committee’s Republicans in opposition.
Responding to criticism from some on the committee who say the cuts are neither deep nor broad enough, State Rep. Maria Horn, D-Salisbury, co-chair of the Finance, Revenue and Bonding Committee, said on Wednesday that the new proposal aims to strike a balance for providing tax relief to a broad range of people and businesses.
“We are committed to returning taxes in a moment of fiscal health for the state of Connecticut, and I do think this package in front of us attempts to do that,” Horn said.
Lawmakers on the committee adopted the governor’s proposal to cut the lowest income tax bracket from 3 to 2 percent. But they halved his proposal to cut the next highest bracket from 5 to 4.5 percent — opting for a more limited cut to 4.75 percent.
The proposal from lawmakers also limits the cut to people earning under $200,000 individually, or $400,000 jointly, in place of a broader tax cut proposed by Lamont to benefit couples making as much as $1 million.
In total, state budget analysts say the income tax changes would return $368.7 million to taxpayers over two years.
State Sen. Ryan Fazio, R-Greenwich, said a middle-class tax cut was long overdue, but that he expected many residents will feel “enormous disappointment” at how small the tax cut will be.
State Rep. Holly Cheeseman, R-East Lyme, the ranking House Republican on the committee, said that even with the savings obtained by capping the tax cuts for higher earners — who received too little relief according to Cheeseman even under the governor’s budget — the proposal still didn’t provide enough relief for low- and middle-income earners.
But Lamont said it was good news that he and lawmakers were discussing a tax cut, in contrast to the budget woes they fretted over in the past, even if his goals for cutting taxes didn’t align cleanly with legislative Democrats.
He said his original proposal was a ”very progressive” tax cut that benefited low-income earners, but was also “broad-based” — a phrase he has used often to describe his goal of cutting taxes for as many people as possible.
“I’m happy to talk to [the committee]. If they say they don’t want to give a $100 tax cut to somebody earning $300,000, I understand that,” Lamont said. “But it makes it easier for me to recruit and hold companies to say I have a broad-based tax cut — and it’s not short-term, it’s not a credit, it’s something you can count on.”
The proposal did boost the state’s earned income tax credit, from 30.5 percent of the value of the federal Earned Income Tax Credit up to 45 percent of that value. That provides more relief for lower-income workers than Lamont’s proposal to raise the state credit to 40 percent. But a number of lawmakers complained the added benefit would be minimal– amounting to about $300 a year for lower-income families.
“We are living in a time where, fortunately, as we sit on this committee, we are not figuring out how to raise huge amounts of money to fill a hole — but we’re dealing with a cup that runneth over,” Cheeseman said. “Based on this income tax, a married couple would see about $300 a year off their income tax, less than $1 a day.”
Notably absent from the legislative proposal was a $600 per child tax credit for families earning less than $200,000 – a measure pushed by progressive groups who say the credit would provide needed relief to working families – and championed by Sean Scanlon in the legislature before he was elected State Comptroller.
The budget also cut a proposal from the governor to restore a pass through entity tax credit that he said would save around 123,000 businesses about $60 million a year on state taxes. State Rep. Jill Barry, D-Glastonbury, said the lack of that business tax cut was one reason she couldn’t vote for the bill.
State Rep. Eleni Kavros DeGraw, D-Avon, said everyone had budget policies they wish were included — she wanted the child tax credit — but the budget had to set priorities, and not necessarily those of the governor.
“We are a co-equal branch of government, and our job as legislators is to sit in these rooms and have conversations about what we consider our priorities as a legislature,” Kavros DeGraw said. “I certainly respect the governor, I respect his priorities, and I certainly hope that as we move forward and have ongoing discussions that he respects ours as well.”
In addition to calling for more tax cuts, Republicans and a few Democrats also took issue with an accounting mechanism in the proposal that they say is a workaround for budget guardrails negotiated by Democrats and Republicans in 2017.
Cheeseman said the proposal includes as much as $300 million of revenue “intercepts” – general revenue redirected into newly-created funds before it can be counted against spending caps.
State Rep. Steve Meskers, D-Greenwich, said the budget addresses outstanding needs in the state, but said lawmakers need to address them in a “sustainable” way — maintaining strict budget guardrails that Lamont and leaders of both parties in the legislature have said are crucial to maintaining the state’s fiscal health.
“I am firmly convinced that continued fiscal prudence in terms of paying down the debt, servicing the debt, reducing the debt burden so that social programs are sustainable in the long run, is in the best interest of all of us,” Meskers said.
Lamont said redirecting that revenue meant the state would pay down less of its pension debt. He called it the “same type of thing they’ve been doing for about 40 years” and “exactly contrary” to the guardrails he credited with moving the state’s finances in the right direction in recent years.
“When you start siphoning off revenues, all of a sudden your budget is out of whack and you violated your own spending caps,” Lamont said. “You don’t want the spending caps, vote ‘em out. But don’t play games. None of these gimmicks.”
Lamont said negotiations will continue as part of the appropriations process, and partly will hinge on the final revenue estimates expected by the end of April.
Office of Policy and Management Secretary Jeffrey Beckham — Lamont’s chief budget official — said previous estimates are “on target” for most taxes. But he said the category that includes more volatile sources — mainly capital gains taxes — is down.
“We anticipated a downturn,” Lamont said of the capital gains tax revenues. “We’ll see what the final number looks like going forward.