Tax Relief

How a small element within the proposed baby tax credit score demonstrates the political balancing act over tax breaks

Ryan Caron King :: Connecticut Public Radio

Fred Carstensen, an economist at the University of Connecticut

A proposal to give state tax breaks to the working poor and middle class in Connecticut tests state officials by reconciling issues of fairness, long-standing racial inequalities and political reality.

Not long after House Democratic leaders announced a reduced, more affordable tax credit for children, University of Connecticut economist Fred Carstensen noted that some of the changes would largely come at the expense of the poor.

However, another proponent of the loan said Connecticut is currently doing too little to aid struggling working class households and cannot miss this opportunity to lift them out of poverty.

“This is both race and class related,” said Carstensen, who directs the Connecticut Center for Economic Analysis. “This means that lower-income people of color and lower-income white people who are white do not deserve the full benefit.”

The UConn economist was referring to the $ 600 per child loan proposed by Rep. Sean Scanlon, D-Guilford, to simplify a combined state and local tax system that, according to at least one analysis, is heavily divided into low and low Low and low-priced bonds support middle-income families.

Scanlon, co-chair of the Finance, Revenue and Bonds Committee, originally intended to provide the loan to households with annual sales of up to $ 682,000. But after raising concerns about the cost, he agreed to tighten things up. The loan would expire for couples earning more than $ 200,000 a year and disappear completely after $ 210,000.

But there was also discussion about making the new child tax credit fully refundable.

Credits are typically only used to reduce the amount of tax owed. Once the tax liability reaches zero, the credit can no longer be converted into a refund in the usual scenario.

However, this is not the case with a refundable credit. Any remaining value after the credit has been used to cover taxes owed will be returned to the filer as a refund.

Scanlon and House Speaker Matt Ritter, D-Hartford, announced last week that the child tax credit is 70% refundable.

Carstensen noted that a middle-class family who owed thousands of dollars in taxes annually would benefit from the entire loan of $ 600 per child. But many poor households owe little or no state income taxes and would receive no more than $ 420 per child – 70% of the full $ 600.

Given that minorities make up a disproportionately large proportion of low-income households in Connecticut, a bill touted as a means of achieving greater tax justice stalled, according to Carstensen.

“This means that lower-income people of color and lower-income white people do not deserve the full benefit,” he added.

But Scanlon countered that things are not that simple.

“Unlike the federal government, where they can only effectively print money and run into trillions of dollars in debt, we have to live within our means,” he said.

Scanlon also said the child tax credit is part of a larger program the Finance Committee is working on that aims to provide tax breaks “in meaningful and meaningful ways” to low- and middle-income households.

The Guilford legislature added that Carstensen and other critics should judge the budget, which the democratically controlled legislature is expected to adopt holistically this spring. “There are other provisions,” he said, adding that when combined with the child tax credit, they will meet the moment. We recognize the fact that most taxpayers have had a tough year. “

Scanlon has not discussed details of any other tax proposals committee chairs had on the tax package they will be recommending this spring. However, several senior Democratic lawmakers, including New Haven Senate President Pro Tem Martin M. Looney, said Connecticut must respond to the pandemic by strengthening the Earned Income Tax Credit, a state income tax break specifically targeted at the working poor.

The state EITC equals 23% of the federal income tax credit of the same name and sends a total of $ 101 million to approximately 191,600 working poor households, according to the Connecticut Connecticut Tax Expenditure Report 2020. The credit, which is fully refundable, is worth an average of $ 525 per household.

And while the program is technically designed to help these families build at least minimal savings – thereby reducing their need for public assistance – proponents say the credit is too low. Most recipients only need to spend the full refund to cover groceries, utilities, and other routine expenses.

Connecticut Voices for Children, a New Haven-based political group that has campaigned for state tax reform in recent years, warned Wednesday not to focus solely on solving poverty.

“I think having a wide range of credit is important,” said Emily Byrne, executive director of Connecticut Voices, which has also advocated larger government investments in health care, education and community aid.

A 2014 tax incidence analysis for the state found that Connecticut’s state and local tax system is pounding low- and middle-income people.

A tax incidence analysis examines which groups pay taxes and how these burdens shift. For example, tenants effectively pay some or all of their landlords’ property taxes.

The 2014 analysis found that the poorest people in Connecticut in terms of adjusted gross income – about 725,000 filers making up to $ 48,000 a year – effectively spent 23.6% of their salaries on state and local taxes in 2011.

In comparison, the middle class paid around 13%, while the top 10% of the workforce paid 10% and the top 1% paid around 7.5%.

And between 2011 and 2017, state officials cut several loans that helped low- and middle-income households when lawmakers faced frequent budget deficits. Byrne said it was critical that the 2021 legislature and Governor Ned Lamont begin reversing extremes of income and wealth inequality in the state.

Carstensen agreed, but added that officials need to be more sensitive to the plight of the Connecticut poor, who are likely to need more assistance than any tax break previously considered.

“If people don’t shout their heads off about social justice,” he said, “they don’t really care about low-income households.”

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