What, a Democratic governor cutting taxes?
On so many levels, if approved, Governor Ned Lamont’s package of election-year goodies in advance of next week’s legislative session lightens the load for Bridgeport. For one thing his proposal to cap motor vehicle property taxes from 45 to 29 mils and reimburse local governments for the resulting revenue loses provides a cut for everyone in the state’s largest city.
All members of the Democratic-controlled legislature are also up for reelection this year. Connecticut’s budget picture has changed dramatically under Lamont, backed by local monetary receipts and infusion of federal dollars.
Governor Ned Lamont today unveiled his first package of legislative proposals for the 2022 regular session, which includes a series of tax cuts that will provide approximately $336 million in relief for Connecticut residents.
The governor said that he is proposing the tax cut package as the state is projecting an operating surplus of $1.48 billion, which will enable a significant reduction in the one-time revenues built into the enacted budget and will continue to ensure the state has a strong rainy day fund.
“When I took office three years ago, Connecticut had a $3.7 billion deficit with projected deficits for many years to come, and for the sake of our economic future I made it a commitment to turn that instability around and strengthen our state’s fiscal health,” Governor Lamont said. “Today, Connecticut has a surplus, and we did it without broad-based tax increases, and while making an historic investment in our pension obligations and leaving the rainy day fund untouched. Connecticut’s fiscal health is stronger than it’s been in decades, and now we can move toward the next phase of the Connecticut comeback–cutting taxes for the people who live here.
“I asked our budget analysts to run some numbers to determine how we can cut taxes in a realistic way that won’t negatively impact the strong fiscal standing we’ve created, while targeting those cuts for those who can benefit most. I’m hopeful that the legislature will agree that these cuts can provide relief, and this package can be the first in a series in the coming years as we continue bringing Connecticut’s fiscal stability on more and more solid ground.”
Governor Lamont’s tax cut proposal includes five parts:
1. Restore full eligibility for the property tax credit (estimated impact: 500,000 people)
— The governor is asking the legislature to immediately restore full eligibility for the property tax credit beginning in income year 2022. Under current state law, the property tax credit is limited to those over the age of 65 or those with dependents. Expanding the credit to all adults within the current income limits ($109,500 for single filers/$130,500 for joint filers) will have an estimated fiscal impact to the state of $53 million.
2. Increase the property tax credit from $200 to $300 (estimated impact: 1.1 million people)
— In addition to restoring the property tax credit to full eligibility, Governor Lamont is proposing to increase the credit from its current rate of $200 to a maximum of $300 per filer. Increasing the property tax credit to $300 will have an estimated fiscal impact to the state of $70 million.
3. Accelerate the planned phase-in of the pensions and annuities exemption from income taxes (estimated impact: 250,000 people)
— The governor is proposing to accelerate by three years–from 2025 to 2022–the planned phase-in of the pensions and annuities exemption under the state income tax. Under current state law, income year 2022 is scheduled for a 56% exemption as the fourth year of a seven-year phase-in of the exemption, which is scheduled to reach 100% by 2025. Single filers with an adjusted gross income less than $75,000 and joint filers with less than $100,000 qualify for the exemption. Accelerating the exemption three years earlier will have an estimated fiscal impact to the state of $42.9 million in FY 2023, declining to $0 in FY 2026 as the existing phase-in is already assumed in the consensus forecast.
4. Expand student loan tax credit (estimated impact: up to 32,000 people)
— The governor is proposing to expand a student loan tax credit that he championed and was adopted in 2019, which gives employers a 50% tax credit on up to $5,250 in payments toward an employee’s student loan. The program would leverage business expenditures alongside the state tax credit to significantly expand eligibility to all loans issued by the Connecticut Higher Education Supplemental Loan Authority (CHESLA). The change would be retroactive to January 1, 2022 and will have an estimated fiscal impact of $9.4 million.
5. Reduce motor vehicle property taxes (estimated impact: 1.7 million vehicles, which amounts to 77% of vehicles in the state)
— Governor Lamont is asking the legislature to approve a law that will lower the mil rate cap on motor vehicle property taxes from 45 mils to 29 mils and reimburse local governments for the resulting revenue impact. A 29-mil cap on all motor vehicles will provide property tax relief for over 1.7 million vehicles in 103 towns and cities, including 20 of the 25 distressed municipalities. This would continue to apply to passenger, commercial, and combination vehicles. Reimbursements to municipalities would cost an additional $160.4 million above the current appropriation.