The state Capitol is witnessing the collision of two powerful opposing forces, with checks worth hundreds of millions of dollars to poor and middle-class families hanging in the balance.
Just two months into the session, 42% of legislators are co-sponsoring bills to create a per-child credit within the state income tax. And with state government steaming toward an eighth consecutive massive surplus, tax relief normally would be a foregone conclusion.
But Connecticut officials are bracing for what many expect will be the worst financial hit — absent a recession — in modern history. All eyes are fixed on President Donald J. Trump, a Republican-led Congress and potential reductions in federal aid that some fear could exceed $1.5 billion.
A state child tax credit “has to be part of the solution,” said state Rep. Kate Farrar, D-West Hartford, a member of the tax-writing Finance, Revenue and Bonding Committee and a leader of the pro-credit effort. “We can’t possibly expect our families, who are already struggling, to suffer even more.”
Farrar is one of 71 lawmakers co-sponsoring a bill to establish a $600 per-child credit, capped at $1,800 per family. It would be available to single parents earning $100,000 or less or couples at or below $200,000.
The benefit also would be refundable, meaning that even the poorest working families that owe no income tax could receive the credit to enhance their refund.
CT tax burdens have shifted from rich to poor for at least a decade
Reformers have been clamoring for a child credit in recent years as the state’s own analyses show its tax system disproportionately burdens the poor and middle class.
The Department of Revenue Services’ 2024 report found the lowest-earning 10% of households effectively spent almost 40% of their income in 2020 to cover state or municipal tax burdens, more than five times the rate faced by Connecticut’s highest earners and two-and-a-half times the statewide average.
And since Connecticut began issuing tax fairness studies a decade ago, the imbalance only has worsened.
Even one of the largest state tax cuts in 2023, which included the first income tax rate reduction since the mid-1990s, only slowed — but didn’t reverse — the ever-widening shift onto working families, according to a 2024 analysis from Connecticut Voices for Children, a progressive New Haven-based policy group.
And while a $600 per-child state tax credit would be unprecedented and significant, tax inequality is so severe that this wouldn’t solve the problem, said Rep. Antonio Felipe, D-Bridgeport, who chairs the Black and Puerto Rican Caucus.
A $600 credit “is a couple of extra weeks of groceries on the table,” he said. “It’s giving them the freedom to deal with a couple of flat tires.”
Advocates for a child tax credit also charge that hardship levels in Connecticut are grossly underestimated.
A family of four’s earnings only has to exceed $32,150 this year to remain above the Federal Poverty Level, a simple metric developed in the mid-1960s by U.S. Social Security Administration economists and based largely on the cost of a minimum food diet.
The United Way of Connecticut has been challenging this standard for years, offering a new methodology that reflects housing, foods, utilities, transportation and child care costs.
According to its ALICE system — an acronym for Asset-Limited, Income-Constrained, Employed households — a family of four faces more than $113,000 in minimum “survival” costs annually in Connecticut.
And if Congress cuts aid to states, it likely won’t stop there, Bates noted. Municipalities, higher education and other federal programs also could be hit, potential cuts that could shift even more costs onto families already struggling.
“We’re in a moment in time where a lot of Americans are saying to themselves, ‘How does government serve me?’” said Lisa Tepper Bates, president and CEO of the United Way of Connecticut. “The child tax credit is an important way to show [that] ‘We hear you. We understand your concerns.’ It’s a real opportunity for elected leaders.”
The Connecticut Catholic Public Affairs Conference, which testified in favor of the $600 per-child credit during a recent public hearing, urged lawmakers to remove the $1,800 per-family limit and establish no maximum total benefit.
The conference’s Cathedral Community Center, located just a few blocks from the Capitol, has served more than 11,000 families in its pantry during the first eight months of operation. It offers clothing and free basic health care.
CT could face massive drop in federal assistance
But legislators still must find a way to pay for this tax credit, and it’s not cheap.
The nonpartisan Office of Fiscal Analysis typically won’t provide a formal cost estimate until shortly before the finance committee’s April 24 deadline for adopting bills.
But early proposals for a $600 per-child income tax credit generally have carried an annual price tag of $300 million to $350 million.
At first glance, Connecticut easily could afford this relief.
The state’s controversial system of budget caps has generated surpluses averaging $1.8 billion over the past seven years, a sum equal to 8% of the current General Fund. And even with state agencies struggling with hundreds of millions of dollars in likely overspending this fiscal year, Gov. Ned Lamont’s budget office still projects yet another cushion of $1.7 billion to $1.8 billion.
Connecticut has used these surpluses to build reserves and pay down its massive pension debt. But many of Lamont’s fellow Democrats in the legislature say the state is saving too aggressively, draining revenues from education, health care and other core services and returning too few of these dollars to over-taxed, struggling households.
The governor has proposed easing those savings rules somewhat starting next fiscal year. And saving less and spending more could make the administration wary of cutting taxes at this time.
Lamont’s budget spokesman, Chris Collibee, said the governor is willing to listen to state tax-cutting proposals “that fit within an honestly balanced budget and that the state will not need to undo in a few years.”
But with Trump and Congress eyeing federal budget cuts that could wipe out as much as one-quarter of the $6 billion in Medicaid payments Connecticut receives annually from Washington, the state might face a potential budget hole far larger than any it creates for itself by relaxing its savings rules.
Should CT tax the rich to finance relief for poor and middle class?
There is one simple way — mathematically, not politically — for state government to provide a $600 per-child credit without weakening its ability to handle reductions in federal aid: Raise enough state tax revenue from some other constituency to match the $300 million to $350 million cost of providing a child tax credit.
The most frequent target in those instances are Connecticut’s highest-earning households and largest corporations.
A 2023 poll commissioned by Connecticut For All, a progressive coalition of more than 60 labor, faith and other civic organizations, found more than seven out of 10 Connecticut voters support higher state income taxes on households earning more than $1 million annually.
Those results are similar to those from a July 2009 poll from Quinnipiac University, which found 71% of Connecticut voters favored — and 27% opposed — a state income tax hike for couples making at least $500,000.
But Lamont, a wealthy Greenwich businessman, has consistently blocked such efforts since he took office in 2019, arguing it would prompt the state’s richest families to flee Connecticut.
He and his staff have said on multiple occasions that the administration wants “more taxpayers, not more taxes.”
The Democratic governor also can expect some support from minority Republicans in the legislature who have opposed raising taxes on the wealthy. Many in the GOP also have a problem with the child tax credit — as Democrats are crafting it.
Republican Sens. Jeff Gordon of Woodstock and Paul Cicarella of North Haven and Reps. Christie Carpino of Cromwell each introduced bills to create a child tax credit. But none of them feature the “refundable” element that would allow poor households that owe no state taxes to add the value of this credit to their refund.
State tax relief needs to be focused solely on the middle class at this time, said House Minority Leader Vincent J. Candelora, R-North Branford.
“They don’t get rental assistance, they don’t get food stamps,” he said, adding that Connecticut already offers one of the largest state income tax credits for working poor households, regardless of whether they have children, of any state in the nation. “To add another benefit really is an insult to the working [middle-income] families.”
Phase-in option would help families over four years
Senate President Pro Tem Martin M. Looney, D-New Haven, has been one of the legislature’s most vocal advocates for reforming Connecticut’s tax system to shift more burdens onto the wealthy and off the poor and middle class.
Looney is proposing bills this year that would create a tax surcharge on the capital gains income of Connecticut’s highest earners and a state property tax, ranging from two to four mills, on homes valued at $3 million or more. [A mill raises $1 for every $1,000 of assessed property.]
But Lamont has refused to allow such measures to be included in past state budgets. And Looney, though still reintroducing them, has no delusions about the uphill battle they face.
The New Haven lawmaker, though, also backs a child tax credit. And while he prefers a full $600 per-child tax break available to low- and middle-income homes, he is skeptical about its future, given Connecticut’s looming fiscal uncertainty.
“Realistically, the only possibility is a phase-in,” said Looney, who introduced a bill to launch a $150 per-child credit right away and build it gradually to $600 over the following three years.
Emily Byrne, executive director of Connecticut Voices for Children, also said that while a refundable $600 credit is preferable, “we also know that any support is urgently needed, and so we’re open to conversations that would allow for children and hard-working families to get this type of financial relief.”
Looney and House Speaker Matt Ritter, D-Hartford, also hope legislators and Lamont will recall a temporary increase in the federal child tax credit in 2021 that added as much as $1,600 per child to households reeling from fiscal chaos of the coronavirus pandemic.
The Center on Budget and Policy Priorities, a Washington, D.C.-based fiscal policy think-tank, had estimated those extra dollars had kept about 80,000 Connecticut youths out of poverty at the time.
“Those kinds of investments,” Ritter said, “make a big deal.”