First Selectman Dan Rosenthal and Legislative Council Chairman Jeff Capeci both offered measured reactions February 2, shortly after learning about Governor Ned Lamont’s plan to propose a $336 million package of tax cuts tied to property tax credits, pension exemptions, student loans, and motor vehicle tax reductions.

Lamont on February 2 unveiled his first package of legislative proposals for the 2022 regular session, which includes a series of tax cuts that he said will provide much-needed relief to Connecticut residents. The governor said that he is proposing the tax cut package as the state is projecting an operating surplus of $1.48 billion, which will enable a significant reduction in the one-time revenues built into the enacted budget and will continue to ensure the state has a strong rainy day fund.

“When I took office three years ago, Connecticut had a $3.7 billion deficit with projected deficits for many years to come, and for the sake of our economic future I made it a commitment to turn that instability around and strengthen our state’s fiscal health,” Lamont said. “Today, Connecticut has a surplus, and we did it without broad-based tax increases, and while making an historic investment in our pension obligations and leaving the rainy day fund untouched. Connecticut’s fiscal health is stronger than it’s been in decades, and now we can move toward the next phase of the Connecticut comeback — cutting taxes for the people who live here.

“I asked our budget analysts to run some numbers to determine how we can cut taxes in a realistic way that won’t negatively impact the strong fiscal standing we’ve created, while targeting those cuts for those who can benefit most,” Lamont added. “I’m hopeful that the legislature will agree that these cuts can provide relief, and this package can be the first in a series in the coming years as we continue bringing Connecticut’s fiscal stability on more and more solid ground.”

Lamont’s tax cut proposal includes:

Restore full eligibility for the property tax credit (estimated impact: 500,000 people) — The governor is asking the legislature to immediately restore full eligibility for the property tax credit beginning in income year 2022. Under current state law, the property tax credit is limited to those over the age of 65 or those with dependents. Expanding the credit to all adults within the current income limits ($109,500 for single filers/$130,500 for joint filers) will have an estimated fiscal impact to the state of $53 million.

Increase the property tax credit from $200 to $300 (estimated impact: 1.1 million people) — In addition to restoring the property tax credit to full eligibility, Lamont is proposing to increase the credit from its current rate of $200 to a maximum of $300 per filer. Increasing the property tax credit to $300 will have an estimated fiscal impact to the state of $70 million.

Accelerate a planned phase-in of the pensions and annuities exemption from income taxes (estimated impact: 250,000 people) — The governor is proposing to accelerate by three years — from 2022 to 2025 — the planned phase-in of the pensions and annuities exemption under the state income tax. Under current state law, income year 2022 is scheduled for a 56% exemption as the fourth year of a seven-year phase-in of the exemption, which is scheduled to reach 100% by 2025. Single filers with an adjusted gross income less than $75,000 and joint filers with less than $100,000 qualify for the exemption. Accelerating the exemption three years earlier will have an estimated fiscal impact to the state of $42.9 million in FY 2023, declining to $0 in FY 2026 as the existing phase-in is already assumed in the consensus forecast.

Expand student loan tax credit (estimated impact: up to 32,000 people) — The governor is proposing to expand a student loan tax credit that he championed and was adopted in 2019, which gives employers a 50% tax credit on up to $5,250 in payments toward an employee’s student loan. The program would leverage business expenditures alongside the state tax credit to significantly expand eligibility to all loans issued by the Connecticut Higher Education Supplemental Loan Authority (CHESLA). The change would be retroactive to January 1, 2022 and will have an estimated fiscal impact of $9.4 million.

Reduce motor vehicle property taxes (estimated impact: 1.7 million vehicles, which amounts to 77% of vehicles in the state) — Lamont is asking the legislature to approve a law that will lower the mill rate cap on motor vehicle property taxes from 45 mills to 29 mills and reimburse local governments for the resulting revenue impact. A 29-mill cap on all motor vehicles will provide property tax relief for over 1.7 million vehicles in 103 towns and cities, including 20 of the 25 distressed municipalities. This would continue to apply to passenger, commercial, and combination vehicles. Reimbursements to municipalities would cost an additional $160.4 million above the current appropriation.

Newtown Reactions

Rosenthal told The Newtown Bee he was “glad” the governor was “thinking in terms of tax relief,” but worried about the potential impact.

“The focus should be on something that is sustainable,” said Rosenthal. “We shouldn’t have our long term fiscal sustainability compromised by short term relief.”

Rosenthal was all for looking at property taxes as ways to relieve the burdens for people struggling to cope with inflation and other costs that are “going in the wrong direction,” but had concerns about the long term plan, especially around the state capping the motor vehicle tax mill rate and paying towns for the losses.

He noted a past pattern with the state of doing things like this, but eventually cutting funding which puts the burden on the towns. He worried that short term relief could put the state on a “roller coaster ride” that could mean it needed to have a large tax hike down the road.

However, in spite of his misgivings, he said the state is “thinking in the right direction” and is in a “solid financial position” thanks to last year’s bi-partisan budget and COVID relief it has received. He liked that the relief seems to be “targeted to the right groups” and said it “frankly could be stimulating” to the economy.

“It makes the state more affordable and puts money in the hands of the people who need it most,” said Rosenthal.

Legislative Council Chairman Jeff Capeci said he’s “always for returning money to people.”

“So quite a few tax breaks are certainly a good thing, assuming they’re paid for,” said Capeci.

Capeci said that it looks like the state will be using just a small percentage of its surplus so he felt that the breaks could be sustainable. He felt that the property tax relief would be a good help to residents and that the phase-in of the pension and annuities exemption from income taxes was “welcome relief to help keep seniors in place.” The student loan relief could help incentivize businesses to invest in education and its work force.

The relief of motor vehicle property taxes was particularly helpful, said Capeci, in the face of hugely increasing motor vehicle values driving up taxes.

“That will be helpful to many Newtown residents,” said Capeci.

Capeci felt that this tax relief “could help pay for itself” by helping reduce residents’ overall tax burden and make it a more attractive place for people to not only stay in but also move to.

“If these tax cuts persuade more people to stay, they will pay for themselves,” Capeci said.

Reporter Jim Taylor can be reached at jim@thebee.com.