Gov. Ned Lamont wants to save middle-income households $440 million annually starting next year by ordering the first state income tax cut since the mid-1990s.

The governor, who unveiled his plans during a late morning press conference in East Hartford, will incorporate the income tax cut in the new biennial budget he presents to legislators on Wednesday.

“It’s a long time coming,” Lamont said of his plan, which would represent the first time state income taxes were cut due to a rate change since legislators added a 3% rate bracket in 1995. And while that resulted in a modest adjustment, the administration projects this plan would represent the single-largest income tax cut since the controversial tax was enacted in 1991.

And while the $600 million-plus tax relief package Lamont and legislators approved last May was dominated by one-time assistance, this year’s proposal is built to last.

“I wanted to make sure this is something we can do, not just for the next year or two,” said the governor, who discussed his plans outside the Community Cultural Center. “I think people want the consistency and certainty to know this is a tax cut that’s built to last. … It’s going to make a difference.”

The administration estimates roughly 1.1 million of Connecticut’s 1.7 million income tax-paying households will benefit from this plan, which aims to revise a complex state income tax system at the points that affect most households.

While many Americans pay just one income tax rate on their non-investment earnings, Connecticut residents pay blended rates when they file their state tax returns.

The state income tax has seven different rates — from 3% to 6.99% — each assigned to a different income range.

For example, a couple with an adjusted gross income of $250,000 currently pays 3% on the first $20,000, 5% on the next $80,000, 5.5% on the next $100,000, and 6% on the final $50,000 that they’ve earned.

The governor wants to reduce the first rate — which also applies to the first $10,000 earned by single filers — from 3% to 2%. He also wants to lower the next rate — which covers earnings between $10,001 and $50,000 for singles and between $20,001 and $100,000 for couples — from 5% to 4.5%.

The administration estimates that many middle-class joint filers would save about $600 per year with the proposed cuts and many middle-class single filers would save about $300. If enacted by the legislature, it would affect paycheck withholding starting in January 2024.

It’s part of a larger plan that also includes tax relief aimed at working poor households and also many small and mid-sized businesses.

Lamont told legislators earlier this month that relief for Connecticut’s middle class would be the centerpiece of his next budget, given the fiscal success the state has enjoyed in recent years.

Since launching a major new savings program in 2017, the state’s rainy day fund has amassed a record-setting $3.3 billion, while officials also have used another $5.8 billion in surpluses whittle down Connecticut’s considerable pension debt.

And Lamont projects the current fiscal year will close June 30 with roughly $3.2 billion left over, which represents 14% of the General Fund and would be the second-largest surplus in state history, topped only by last fiscal year’s $4.3 billion cushion.

“Today, Connecticut’s fiscal health is stronger than it’s been in decades,” Lamont said. “Considering the state’s strong financial position, it is time to provide tax relief for Connecticut’s residents.”

Lamont’s proposal is expected to draw considerable support, particularly from moderate Democrats and from the Republican minorities in the House and Senate.

GOP lawmakers centered their 2022 tax relief plan on reducing the 5% state income tax rate to 4%. And the minority leaders already have put a broad-based income tax rate cut at the top of the priority list for 2023.

But there also could be pushback on the governor’s proposal from multiple sides.

Republicans say Connecticut families need help now, and they wouldn’t benefit from the cut in income tax rates under the governor’s plan until January.

“I am pleased the governor has embraced some of the Republican-themed tax initiatives that we proposed last year, although I wish we could provide more immediate relief,” said Rep. Holly Cheeseman of East Lyme, the House GOP’s ranking member on the tax-writing, Finance Committee. “I eagerly await to see the additional budget details the governor will unveil this week.”

Progressive Democrats believe relief should be prioritized for those low- and middle-income families hardest hit by the coronavirus pandemic as well as by the 40-year-high inflation the nation faced in 2022.

Liberal legislators say this aid can be targeted more effectively through tax credits than through rate reductions.

At the top of progressives’ wish list is a new child tax credit. State Comptroller Sean Scanlon, a Guilford Democrat, first pitched this two years while serving in the House, calling specifically for $600 per child for families earning less than $200,000 per year, with a maximum of $1,800 of relief per household.

Scanlon also wanted 70% of the credit to be refundable to ensure that the poorest families — that might have no income tax liability — still could receive up to $420 per child.

Given the huge projected surplus and budget reserve, many legislators argue the state can afford to do more to help those in need. Two state tax fairness studies also have shown that the state and municipal tax system combined effectively burdens low- and moderate-income households far more than it does Connecticut’s wealthiest families.

Still, the child tax credit as Scanlon has proposed would cost more than $300 million per year, and it’s unlikely that Lamont — and many legislators — would support doing this and the income tax rate cuts, as proposed by the governor, at the same time. It might be possible to do them simultaneously if both were watered down.

One of the legislature’s strongest advocates for a new child tax credit, Senate President Pro Tem Martin M. Looney, D-New Haven, praised the governor for targeting most of the relief on the middle class.

“We applaud Governor Lamont’s effort to add more progressivity to the income tax by taxing lower incomes at a lower rate,” Looney said. “We look forward to working with the governor as the General Assembly begins its budget process.”

The governor already has tried to find common ground with progressives, pledging last week to bolster an existing state income tax credit that helps Connecticut’s poorest working families.

He specifically agreed to elevate the value of the state Earned Income Tax Credit from 30.5% of the federal EITC to 40%. This would bolster refunds by an average of $211 per year for families that generally will earn less than $64,000, costing the state about $45 million annually.

Still, not all of the relief Lamont has proposed would go to the poor or to the working class. The administration estimates that about 70% of the relief tied to the proposed rate cuts and the EITC expansion would go to low- and moderate-income households.

But while middle class households would benefit the most from reducing the 3% and 5% tax brackets, any cut in those areas also would benefit singles making as much as $500,000 per year and couples making up to $1 million.

Keith M. Phaneuf is a reporter for The Connecticut Mirror (www.ctmirror.org). Copyright 2022 © The Connecticut Mirror.

kphaneuf@ctmirror.org