Connecticut appeared headed for an unusual showdown over tax cuts late Monday after a key legislative panel endorsed nearly $900 million in new relief options, including new relief for renters and expanded breaks for shoppers and seniors.
How much tax relief, what kinds and how long should it last are questions putting lawmakers at odds with Gov. Ned Lamont and among each other — across party lines and within them.
Lamont favors a one-time rebate, while most lawmakers want some form of ongoing relief.
House lawmakers from both parties lean toward more modest tax cuts, noting Connecticut has some big fiscal challenges on the near horizon. Senators tend to favor a larger relief package, saying the high cost of living threatens too many families.
Republicans have focused most of their cuts on the income tax, state government’s largest revenue source. Democrats would use income and sales tax cuts to target specific groups for relief.
“I think the committee is saying very clearly … that there’s a desire to address the affordability issue in Connecticut,” said Sen. John Fonfara, D-Hartford, co-chairman of the Finance, Revenue and Bonding Committee, which must complete its proposals by the end of Tuesday to raise revenue for the next budget cycle.
Those bills, combined with a spending plan the Appropriations Committee will adopt Tuesday, will represent the General Assembly’s response to the $28.7 billion budget Lamont proposed in early February for the fiscal year that begins July 1.
The administration and top lawmakers then will try to negotiate a compromise budget before the regular 2026 legislative session closes May 6.
Fonfara said his hope is “that we will be able to provide relief to as many residents of the state, as much as we can, responsibly.”
A new tax break for renters
The largest tax-cutting bill the Democratic-controlled committee approved Monday would broaden or create new sales tax exemptions, effective July 1, topped by removal of the 6.35% sales tax on all clothing and footwear items costing $100 or less. Connecticut currently waives that levy on clothing and footwear only for one week annually in August as part of its sales tax holiday.
The measure also would cancel sales tax on non-electronic school supplies such as backpacks, lunch boxes, pens, pencils and paper; energy-efficient appliances such as air conditioners, washers, driers and furnaces; and sandwiches and other take-out food sold at supermarkets.
But the largest relief in this omnibus bill wouldn’t take effect until next January, through a series of new or expanded credits against the state income tax.
Chief among them would be a new credit for low- and middle-income renters, offsetting up to $1,000 of their expenses annually. Nonpartisan analysts said this new credit alone would cost the state about $202 million.
But some legislators favor broader relief for renters.
The state’s last tax fairness study showed low- and middle-income households effectively pay a far greater share of their earnings than do the wealthy to cover state and municipal tax burdens, in part because landlords easily shift most or all their property tax obligations onto renters.
A second bill approved by the committee Monday would allow a credit as large as $2,500 to offset rent. But that would cost about $575 million per year.
The committee also endorsed creation of a new rental registry to gather more data on cost of living and affordability in Connecticut. Owners and operators of rental properties would pay a $100 fee yearly to register their properties and face a civil penalty up to $1,000 for noncompliance.
Other income tax changes endorsed by the finance committee Monday include:
- Boosting the maximum credit that offsets municipal property tax bills from $300 to $400.
- Exempting all Social Security income from state taxation. Currently, singles whose federal adjusted gross income [AGI] is below $75,000 per year and couples below $100,000 pay no state income tax on Social Security. Filers with AGI greater than those limits receive a partial exemption.
- And a new credit offsetting up to $2,000 for residents who incur expenses providing care for a family member.
How many tax cuts can Connecticut afford?
But while many of the tax-cutting measures adopted Monday enjoyed bipartisan support, that often is a courtesy that members extend to move the measures out of committee.
Rep. Joe Polletta of Watertown, ranking House Republican on the finance panel, said he and his caucus favor tax cuts to make Connecticut more affordable. They also want residents to enjoy breaks that will pay year after year, rather than the one-time, $200-per-person rebate Lamont proposed for this October.
The governor said Connecticut can spare, for now, the $500 million the rebate would cost but shouldn’t be returning hundreds of millions to taxpayers every year, despite the $1.8 billion surplus the state has averaged annually since instituting aggressive budget caps in 2017.
Lamont wants most of those dollars used to continue to whittle down state pension debt, which still exceeds $33 billion and is one of the largest burdens, per capita, of any state in the nation.
The governor also is wary of big cuts in federal Medicaid assistance scheduled to kick in next fiscal year.
Polletta, whose fellow House Republicans proposed a $275 million income tax cut by boosting the property tax credit, was wary of the nearly $900 million in tax-cutting options the committee endorsed.
“I would just caution folks to remember is this is a large bill with a hefty price tag, and we just need to be careful that we’re not over-committing ourselves here,” he said.
Rep. Maria Horn, a Salisbury Democrat and House chairwoman of the finance committee, warned lawmakers from both parties last week not to be too aggressive with relief since they also have pledged to make big investments to expand affordable child care and education aid to cities and towns.
House Minority Leader Vincent J. Candelora, R-North Branford, was blunt just prior to Monday’s finance committee meeting. Candelora said there’s no way all the relief measures that panel would endorse would make it into the final state budget.
To get taxpayers’ hopes up by dangling this relief at the committee level is unfair, he said, adding, “It’s a farce on the public.”
Candelora’s fellow Republicans in the Senate minority have put the most tax cuts on the table, pitching more relief than even the finance committee.
The Senate GOP proposed big income and payroll tax cuts that could deliver more than $1,500 per year to middle-class households. But that plan also would eliminate most or all state budget surplus funds and potentially push finances into deficit in the next few years, based on the latest budget and revenue projections.
Sen. Ryan Fazio of Greenwich, ranking GOP senator on the finance panel and a gubernatorial candidate, stuck by his caucus’ plan Monday. The committee’s proposals aren’t sufficient to help households in need and are too targeted, leaving some groups in need with little help, he said.
“This bill is a slight tax decrease overall,” he said “One change here, one change there, I think it is, at best, a suboptimal way to reduce the tax burden on Connecticut residents.”
Other bills adopted Monday by the finance committee would:
- Create a new program to share state revenues with Connecticut cities and towns, but not until 2031. One-half of 1% of income, sales and corporation tax revenues would go into this program. Nonpartisan analysts estimated the program might capture about $90 million per year. Communities could use the funds pay for local services or mitigate municipal tax hikes.
- Order a study of whether Connecticut could finance a universal free breakfast and lunch program in public schools with a tax on sweetened beverages. “Lack of nourishment among school children is a serious problem in Connecticut that looming federal cuts will only worsen,” said James Williams, government relations director for the American Heart Association. “Connecticut residents overwhelmingly support providing school meals and a tax to pay for them. We will continue to advocate for proposals that will ensure every child can get the meals they need to learn and perform better.”
- Create a new business tax credit for dairy farms and other milk producers.