Sen. Martin: “They’re definitely feeling it at the grocery store.”

April 21, 2023

Dan Haar: A quarter-point CT income tax cut? Don’t waste my time

To understand this week’s hot debate about how big Connecticut’s state income tax cut should be, let’s look back to the start of this year.

On the opening day of the legislative session in January, I criticized Gov. Ned Lamont in a column for not bringing any big, new ideas to his second term after winning re-election handily. His calm response: We don’t need any big ideas if we see sustained economic growth.

And no ambitious schemes will matter if we don’t see the economy grow consistently, he added.

A month later, Lamont pitched his 2-year budget with a centerpiece tax cut that would trim the 5 percent rate paid by many middle-class households down to 4.5 percent.  It would save nearly $600 for couples making $100,000 a year who filed jointly, and up to $290 for single-filers.

That seemed kinda small for a supposedly bold table-setter designed to spark the economy, but okay. Combined with other tax cuts and budget surpluses that were used to pay down pension debt, it would send a signal: We’re finally heading in the right direction.

Anyway, a bigger cut might leave us in a hole in a couple of years when the fat surpluses melt away, the gov and his budget czar, Jeffrey Beckham, have said all along.

Fast forward to Wednesday, when the General Assembly’s tax-writing Finance Committee rolled out its plan for the upcoming two years: That half-point cut was sliced down to a quarter-point, a 4.75 percent rate.

Republicans and Lamont — a fiscally moderate-to-conservative Democrat — have spent the last two days in a new alignment attacking the cut to the cut.

“I’m disappointed. I wanted the biggest middle-class tax cut I could get,” Lamont told reporters in his office Thursday.

Rep. Holly Cheeseman, R-East Lyme, the ranking House Republican on fthe committee, was harsher. “We are dealing with a cup that runneth over,” Cheeseman said at the Wednesday committee meeting, referring to $9 billion in surpluses over the last three years. “Surely we can do better…Surely we can find a way to put more money back in the pockets of our hardworking taxpayers – the middle class.”

A tax cut in marquee lights

Lamont and the GOP are dead-right here, and not just because the money is available. The state income tax is Connecticut’s fiscal front door, the marquee levy that accounts for almost half of the entire budget. If we’re goint to cut it, let’s make some noise.

To put all this in perspective, both the governor and the Finance Committee included a menu of tax cuts, way more that I can outline here. Overall they’re about $550 million a year for Lamont, close to $700 million for the lawmakers, once all the givebacks kick in.

The lawmakers’ plan is more generous to taxpayers with added business credits, allowing more retired people to deduct pension and annuity income, a larger increase in the credit for working poor families than Lamont offered.

And it features a weirdly complex scheme designed to temporarily help people who live in low-income neighborhoods, courtesy of Sen. John Fonfara, D-Hartford, the commitee’s co-chair, who’s running for mayor of the capital city.

“This entire package is about reducing taxes,” Rep. Maria Horn, D-Salisbury, the other co-chair, after Cheeseman and other Republicans called the cuts too small. “Consumers are also taxpayers. Business owners are also taxpayers. Retirees are also taxpayers. The taxes that we pay in the state of Connecticut are not just the personal income tax and what we have tried to do here was strike a balance…We are committed to returning taxes in a moment of fiscal health.”

That’s all good thinking by a very smart lawmaker.

Trouble is, it’s spread out in too many places with too much focus on low-income people when what Connecticut needs is a high-profile cut for the middle class, in bright lights.

Here’s why: If we’re talking about jolting the economy, it’s not just about the flow of dollars. It’s the signal, the optics that matters almost as much — especially when it comes to attracting people to come to the state. That’s what Connecticut needs most of all.

“It’s easier to recruit companies with a broad-based tax cut,” Lamont said.

As my old editor George Gombossy used to say about investigative journalism, if you’re going to slam someone, drop a piano on him or don’t bother. And he did, in his day.

In short, if you’re giving me a cut of one-quarter of 1 percentage point, I appreciate the gesture but don’t waste my time.

Complex numbers, simple concept

Here’s how the numbers shake out according to the governor’s budget office.

It’s complicated because the formulas have elaborate steps between the different tax rates. This is the state income tax only and does not include the earned-income tax credit for families with low and moderate incomes.

It does include a cut in the income tax on the first $20,000 of earnings for couples and $10,000 for single filers, from 3 percent to 2 percent — which Lamont and the committee both proposed.
Joint filers making $45,500 would save $176 under Lamont’s plan and $173 under the committee plan.  Couples at $60,500 would save $312 under Lamont’s plan and $246 under the committee plan, a difference of $66.

The difference grows to $136 for couples earning $80,500 (cuts of $452 vs. $316); then rises to $198 for couples earning $105,500 ($594 vs. $396).

Above that income level, the savings start to decline. A couple earning $175,000 would see a savings of $500 under Lamont’s plan and $250 under the committee plan.

And at the top income levels, the committee plan actually raises taxes by as much as $250, not because the rates go up but because of how that plan handles the steps between rates. Lamont allows a tax break of $200 at $575,000 for a couple — relief he should and probably will agree to eliminate — and the committee would add $150 to that couple’s tax bill.

The picture is similar for single filers but the savings and the threshold income levels are lower.  For example, a single filer earning $80,500 would save $275 under Lamont’s plan and $163 under the committee plan.

The numbers are complex but the concept is simple.

Even though the committee would cut overall taxes by a bit more, it offers no single, notable, marquee, middle-class relief.

Lamont’s plan does, barely.

Like Cheeseman and almost all the other Republicans, Sen. Henri Martin, R-Bristol, thinks that 5 percent middle class rate should be cut well below 4.5 percent, with the benefit eliminated for households making more than $200,000 or $250,000.

“They’re definitely feeling it at the grocery store,” Martin said of his middle-income constituents.

Cheeseman added that mom-and-pop businesses are the core of the state’s economy. “These are run by people in the middle class,” she said, and their profits pay the income tax.

This $50 billion, 2-year budget has no shortage of other disputes. Chief among them is that Democrats hellbent on spending more money for very legitimate causes such as higher education, municipal aid and human services are concocting elaborate ways to sneak around a strict spending cap that’s determined by inflation and income growth.

That has led to sharp criticism from Lamont, Beckham and the Republicans. (See the picture here?)
The good news: As budget fights go, these are not wide gaps.

Agreement is in easy reach.

But for all the surpluses, there are no big ideas here.

No permanent child tax credit, no capital gains surcharge, both of which many progressive lawmakers wanted. That’s why at the least, the back-room talks now underway must emerge with that half-point tax cut for the portion of income from $20,000 up to $100,000 a year for joint filers.

We need something to talk about, to tell people in Iowa about.

As Cheeseman said, “Everybody would rather have a 50-cent piece than a quarter.”

Comparison: Lamont’s and lawmakers’ income tax cut proposals

Income        Governor’s savings       Lawmakers’ savings     Difference
$50,500                $213                             $192                          $21
$70,500                $430                             $305                          $125
$90,500                 $497                            $339                          $158
$105,500               $590                            $385                          $205
$125,500               $550                            $325                          $225
$225,000               $500                            $250                          $250

Income        Governor’s savings       Lawmakers’ savings   Difference
$50,500                $270                            $180                          $90
$70,500                $285                            $178                          $107
$90,500                 $265                           $148                          $117
$105,500               $250                          $125                           $125
$125,500               $250                          $125                           $125
$225,000               $208                          ($21)                          $229

source: CT Office of Policy and Management

note: Does not include earned income tax credit changes