The legislature’s tax-writing committee found itself restricted Tuesday, just days from its deadline, when members learned that any tax changes couldn’t be considered this year.
The Finance, Revenue and Bonding Committee, which hoped to wrap its work Wednesday, instead focused its efforts Tuesday launching analyses of existing tax breaks, ways to enhance revenue collection, and options to use taxes to bolster Connecticut’s economic competitiveness.
Tax changes came off the table once leaders of the Democratic-controlled legislature announced that lawmakers would not make formal adjustments to the preliminary $26 billion budget adopted last June for the 2024-25 fiscal year.
Any efforts to reduce or increase taxes would necessitate reopening the budget to include a new revenue schedule. But reopening the budget also would require legislators to plug holes in pension contributions and other technical items that need added funds — problems they would like to postpone until later next fiscal year so they can focus more resources now on higher education, social services and children’s mental health programs.
But Rep. Maria Horn, D-Salisbury, co-chair of the finance panel, said she believes most legislators were realistic about the odds this year.
“We went into this year knowing our margins were small,” she said, adding most significant tax bills “we were looking at were for the long term.”
Legislators from both parties had pitched new income tax relief for households with children, which would reduce revenues.
State finances are projected to close in the black both this fiscal year and next. But the budgetary controls Connecticut has followed since 2017, coupled with expiring federal pandemic aid, leave officials with less discretion to spend than they’ve enjoyed in recent years.
Progressive Democrats had proposed measures to raise income tax rates on Connecticut’s wealthiest households. And while those proposals face staunch opposition from Democratic Gov. Ned Lamont and from most Republican lawmakers, legislators likely couldn’t appropriate most of the revenue those proposals would generate next year because of spending controls in the guardrails system.
Rep. Holly Cheeseman of East Lyme, ranking House Republican on the finance committee, said she had hoped to advance her party’s proposal to create a new income tax deduction for households with children.
But Cheeseman said the spending controls have kept state finances in the black for seven years while building large reserves and helping to pay down hundreds of millions of dollars of pension debt.
Legislators approved major state tax cuts in 2022 and 2023, and if the guardrails are followed, she said, there should be more tax-cutting opportunities in the future.
“I am not necessarily averse to being conservative about not taking revenue from the future” budget, she said.
Cheeseman added that she believes state finances also would benefit over the long haul if the full legislature approves a bill the committee approved Tuesday assessing the more than $10 billion in annual tax credits, deductions, exemptions and other breaks currently offered across the entire state tax system.
Legislators from both parties have long argued the state rarely reexamines tax relief programs in detail after they’ve been approved, sometimes leaving them in place for decades without much attention.
Cheeseman said she particularly is focused on what many call “stranded” business tax credits tied to research and development. Companies are limited in how many credits they can use annually, and some eventually earn them faster than they can be claimed, projecting they likely will never gain the full benefit from this relief.
A 2020 report from the legislature’s nonpartisan Office of Legislative Research, citing 2018 tax data, estimated there were nearly $1.8 billion in unused R&D credits that businesses had earned but not yet applied to their tax liability.
Helping companies to leverage these credits could stimulate job growth and overall economic activity, Cheeseman said. And as more jobs are created, more income and other taxes are paid.
“That’s real revenue that we are technically forgoing,” she said.
Keith M. Phaneuf is a reporter for The Connecticut Mirror (https://ctmirror.org/ ). Copyright 2024 © The Connecticut Mirror.
