Scanlon forces Lamont to stay focused on tax fairness

Gov. Ned Lamont blocked pressure from Representative Sean Scanlon this year for a significant state income tax cut for Connecticut’s middle class.

But Scanlon has made sure – thanks to the new state budget signed by Lamont last week – that Lamont will not forget him anytime soon.

The two-year budget will force the administration to conduct Connecticut’s first tax fairness study in seven years, something tax moderates and conservatives have repeatedly blocked since 2014.

And if new federal income tax relief for the middle class expires as planned after this year, the budget also calls on Lamont to at least develop his own plan to ease state tax burdens on households. low and middle income.

“Our world is changing every year, but our world has changed a lot between 2014 and 2021,” said Scanlon, a Democrat from Guilford, who added that no one knows how much the coronavirus pandemic has skewed things over the course of the year. last year.

“If I had to guess, that [next] A study will show that the problem is much worse than it was seven years ago, ”he said,“ and I hope that is a call to action ”.

The 2013 General Assembly first ordered the Tax Services Department to provide a tax incidence analysis by December 2014, and then prepare for a follow-up every two years.

An incidence analysis examines which groups pay taxes and how those burdens are shifted. For example, tenants effectively pay some or all of their owners’ property taxes.

The report also noted that Connecticut relies heavily on regressive taxes – levies that apply the same rate to all households, regardless of income. Examples include property, sales, and gasoline taxes.

The analysis found poorest in Connecticut households in terms of adjusted gross income – around 725,000 tax filers earning up to $ 48,000 per year – actually spent 23.6% of their wages on state and local taxes.

In comparison, the middle class paid around 13%, while the richest 10% of wage earners paid 10% and the richest 1% paid around 7.5%.

But while that report prompted numerous statements of concern from state officials, legislatures and governors did not allow another study, voting four times between 2015 and 2019 to postpone another analysis.

Some moderates and tax conservatives rejected the study on the grounds that the data is now simply too old.

Yale Law School Professor Anika Singh Lemar, who teaches at the school’s Community and Economic Development Clinic, supports the regular updates, noting that “otherwise you risk making policies in the school. empty”.

Given the very restrictive zoning rules many communities use to prevent the construction of apartment complexes in Connecticut, Lemar also believes the upcoming tax fairness study may show more tax burdens are shifted to tenants.

“We have a very tight housing market right now,” she said. “It hits tenants because you’ve basically made it illegal to build multi-family housing in your state.”

The last of the four times the tax fairness study was postponed involved the 2019 legislation signed by Lamont. And Scanlon said the administration had asked for a further postponement of the last budget debate.

“While the tax incidence study provides useful information on the tax burden by income bracket, it is an important undertaking and particularly useful at a time when larger tax policy changes are being considered.” said Melissa McCaw, the governor’s budget manager. Wednesday.

Lamont insisted that the new state budget not include any major tax increases and blocked progressive proposals to impose new income tax surcharges on wealthy households and a tax on advertising in public buildings. digital media on online giants like Google and Facebook.

But amid the economic chaos of the pandemic, Lamont also questioned whether Connecticut could afford to engage in a significant state tax cut for the middle class.

About 4% of the state’s new biennial budget of $ 46.4 billion, or roughly $ 1.8 billion, is supported by temporary federal relief in the event of a pandemic that expires in 2024.

Scanlon wanted to give low- and middle-income households $ 600 per child – up to a maximum of $ 1,800 – from their state income taxes. It would cost Connecticut about $ 300 million a year, according to the Legislature’s Office of Fiscal Analysis.

Lamont blocked this for two reasons.

“We got out of hell a year,” Lamont said during the discussion of the new state budget on June 10, one day after the adjournment of the regular session of the General Assembly in 2021.

The governor agreed that Connecticut’s tax system, “particularly overreliance on property taxes … hits the middle class hardest.”

But he quickly added that he was trying to revive an economy that created few new jobs in three decades – before a pandemic that wiped out 292,000 jobs.

According to the Ministry of Labor, the state has recovered around 185,000 of those jobs, but there are still more than 100,000. And it still has over 175,000 filers receiving weekly unemployment benefits.

“I have to make sure that we remain competitive and can grow,” added the governor, “because a growing economy is one of the best ways to reduce taxes in general.”

The governor’s second reason for opposing a state income tax cut for the poor and middle classes was that Congress recently granted them federal tax relief. The American Rescue Plan Act specifically set the federal child tax credit between $ 3,000 and $ 3,600 per child for this year only. Normally, the limit is $ 2,000 per dependent.

The Connecticut congressional delegation has pledged to fight to make this upgrade permanent, but there is no guarantee that will happen.

And Scanlon assured that the new state budget requires Lamont to prepare for this possibility. He expressly orders the administration at least develop a plan to create a child tax credit as part of state income tax – if and when the enhanced federal benefit expires or is reduced.

Many supporters of tax reform reject Lamont’s argument that the temporary federal relief is sufficient, arguing that Connecticut’s poor and middle classes were economically hammered before even 2020.

“Between 2010 and 2019, before the pandemic, Connecticut was the only state to experience an increase in child poverty rates,” said Emily Byrne, executive director of Connecticut Voices for Children.

The New Haven-based political group has been one of the strongest advocates for a child tax credit to help the struggling middle class.

“Given the dire impact of the coronavirus pandemic and recession on children and families – compounded by the fact that Connecticut has one of the nation’s largest income and wealth gaps and more than a decade of stagnant wages for the majority of its workforce – it wouldn’t be surprising to learn that child poverty has increased further over the past two years, ”Byrne added.

Lamont, a Democrat from Greenwich, has his own checkered past when it comes to promises to help Connecticut’s middle class.

When he ran for his first term as governor in 2018, his Republican opponent, Madison businessman Bob Stefanowski, made a fiscally dubious pledge to eliminate income tax from the state, which effectively pays half of the general budget fund.

As a shield, Lamont pledged to offer income tax cuts to the poor and the middle class by expanding a credit that offsets household property tax costs.

He then reneged on that pledge, and since his election he has said he opposes cutting state taxes on the poor and the middle class if it means raising taxes on the rich to pay. The governor said this approach will make Connecticut’s economy less competitive compared to competing states and encourage wealthy families to relocate.

The Recovery For All Coalition, a team of labor and faith groups, frequently lobbied Lamont last spring to tackle growing income and wealth inequality. The Black and Puerto Rican Legislature Caucus also argued that Connecticut is doing too little to address long-standing racial inequalities in access to education, health care, affordable housing and economic opportunity.

Coalition director Puya Gerami said last week that “this debate over Connecticut’s extreme inequity is only just beginning” and will persist absolutely throughout the 2022 governors’ campaign.

Lamont has deflected questions about whether he will run again, but many Democratic insiders expect him to seek re-election.

“We can no longer wait for justice to be served,” Gerami said, adding that the 2022 competition will be “basically, a debate about what kind of state Connecticut should be.”