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Lamont uses federal COVID money to fund one-time tax relief for poor

Jessica Hill

Gov. Ned Lamont will redirect $75 million in expiring federal COVID-19 relief into one-time state income tax refunds for Connecticut’s working poor in late February.

But the announcement prompted mixed reactions Wednesday as Republicans noted the relief — about $377 for each of nearly 200,000 households — is aimed at Lamont’s political base just as the Democratic governor enters his re-election year.

It also comes as Lamont faces continued criticism from progressive Democrats for reneging on a 2018 campaign pledge to expand state tax relief for the poor and middle class.

“Enhancing the 2020 Connecticut Earned Income Tax Credit provides direct relief to workers doing their best to provide for their families while confronting pandemic-related costs from masks and tests to child care and internet access,” said the governor, who called the credit “one of the best anti-poverty tools we have. The EITC encourages work, boosts economic stability and uplifts generations to come.”

A credit against the Connecticut income tax, the state EITC was launched in 2011, equal to 30% of the federal credit of the same name. But over the past decade, as governors and legislatures struggled with numerous budget deficits, the credit was whittled down to 23% of the federal EITC.

Lamont specifically ordered a one-time, retroactive expansion of the state credit to 41.5% for the 2020 tax year.

An estimated 198,708 households earning $56,844 or less qualified for the state credit last year, receiving about $525 on average. The amount of each household’s enhanced credit is needs-tested and depends on several factors besides the size of the federal credit, including income, marital status and children.

Lamont’s order would add, on average, $377 to each household’s state income tax refund.

The $75 million Lamont would use to fund this tax break involves federal COVID-19 relief dollars that states must spend — or forfeit — by Thursday.

Advocates for working poor praise Lamont

The governor quickly earned praise from tax-relief advocates.

Senate President Martin M. Looney, D-New Haven, said the relief would hit those households most in need “that suffered immeasurably during the height of the pandemic.”

And Rep. Sean Scanlon, D-Guilford, co-chair of the legislature’s tax-writing Finance Committee, added, “those families are about to see a much-needed additional boost at a time they need it most.”

A temporary expansion of the federal income tax’s child tax credit provided an extra $1,000 to $1,600 per child to many Connecticut families this year.

But that expansion expires this month, and one Washington-based fiscal think-tank estimates more than 600,000 Connecticut children live in households that will lose this enhanced tax relief starting in January.

Further complicating matters, federal enhancements to state unemployment benefits, which added as much as $300 per week, went away in early September.

Lisa Tepper Bates, president and CEO of the United Way of Connecticut, called this “a huge blow” to many families even as a new surge in COVID-19 cases tied to the omicron variant strikes Connecticut.

“As omicron spikes and we’re asking people to isolate themselves if sick or quarantine if they’ve been exposed, there are a lot of Connecticut residents who simply cannot afford to go without pay.”

Bates added the state EITC is an excellent economic stimulus program, because the low-earning recipients spend nearly all of their refund on utility bills, groceries and other basic needs.

Lamont’s order: Relief for the poor or campaign politics?

But while omicron dominates the headlines, Connecticut also is poised to start a gubernatorial election year on Saturday, and the timing of Lamont’s order — coupled with the moderate Democrat’s checkered past on tax relief — raised concerns among the GOP.

Lamont, a Greenwich businessman, campaigned heavily in 2018 on a pledge to cut state income taxes for the poor and middle class by expanding a credit that offsets the cost of Connecticut’s onerous municipal property taxes. But Lamont opted not to fulfill that pledge after realizing it would be difficult to provide relief without also raising state tax rates on the wealthy. The governor has said he believes this would drive wealthy families to leave the state.

The governor spiked a Finance Committee plan to raise the state EITC permanently to 40% of the federal credit, to order other income tax relief for the poor and middle class — because it involved hundreds of millions of dollars in tax hikes on the rich and on major corporations.

Lamont and lawmakers did agree this past spring to boost the state EITC to 30.5% starting with the 2021 tax year and returns filed in the spring of 2022.

House Minority Leader Vincent J. Candelora, R-North Branford, noted the federal relief funds Lamont is using to assist the poor were earmarked primarily for COVID-19 testing and for masks and other protective gear.

Connecticut’s health care and education programs still need those dollars, Candelora added, more than a subset of the governor’s political base.

“It’s astounding to me that we are in the middle of another wave of this pandemic, our school systems are strapped, our teachers and health care workers are fatigued, and people are right now lining up in our communities to battle for test kits, and the governor is choosing to … politically pander to his base,” Candelora said.

Republicans noted that GOP Gov. John Rowland proposed and won legislative approval for a $50-per-person tax rebate when he sought re-election in 1998, and that Democratic Gov. Dannel P. Malloy proposed a $55-per-person rebate as he geared up to run again in January 2014. Malloy would later withdraw his proposal a few months later when state revenue projections declined. But both involved returning state tax receipts, not federal grant dollars, to Connecticut taxpayers.

Republicans also noted that lawmakers passed a statute this spring requiring Lamont to work with them to spend American Rescue Plan Act funds — the major wave of federal relief provided in 2021 — specifically because the governor had ignored legislative input while spending earlier rounds of federal relief.

“This governor continues to flaunt the separation of powers and transparency and rule by fiat,” said former House Minority Leader Themis Klarides, a Derby Republican who is running for governor.

Klarides added that “this Democrat governor continues to believe that the best way to help people is just hand them money rather than create an economy where people can get well-paying jobs.”

Lamont’s 2018 gubernatorial opponent, Madison businessman Bob Stefanowski, is also expected to run again in 2022.

“The governor should have used this COVID money to make more testing available for residents who are waiting in lines for hours during their holidays,” Stefanowski said, “rather than bypassing the legislature once again to issue a one-time check for obvious political purposes.”