The turn of the calendar often leads to New Year’s resolutions, but in Connecticut it also means the start of a series of new laws enacted by the legislature and the governor.
While 2024 will be known for the presidential election, the year also marks the start of several tax cuts for workers, senior citizens and families. These include the largest cut in the state income tax in Connecticut history.
The state will also be increasing the minimum wage to $15.69 per hour and hiking the deposit on bottles and cans to 10 cents, up from the current 5 cents that has been in place since 1980.
Gov. Ned Lamont and legislators are hailing the tax cuts as an expected 1.1 million tax filers will see relief under a new law that reduces the 5% income tax rate to 4.5% and also cuts the 3% rate to 2%. That represents 63.2% of tax filers.
A family earning $100,000 per year will see their state income tax cut by nearly $600, and single filers could receive up to $300 — the highest totals available under a sliding scale. Those earning different amounts will receive varying relief. No income tax cuts were awarded for individuals earning more than $150,000 per year and couples earning more than $300,000 per year.
In a relatively rare event, Republican legislators gathered recently at the state Capitol with Democrats in an upbeat, bipartisan press conference to say that the laws are often written better when contributions come from members of both political parties.
“We are very excited to provide this holiday cheer,” said Lt. Gov. Susan Bysiewicz. “We have it all in Connecticut: tax cuts, pizza, and Huskies basketball.”
House Republican leader Vincent Candelora of North Branford, who has tangled at times with Lamont, said Republicans have been directly involved in the budget talks only two times in the past decade because Democrats have controlled both chambers of the legislature during that period. The last time generated the historic, bipartisan agreements in 2017 that created fiscal guardrails that have allowed the state to set aside an additional $7.7 billion into the underfunded pension funds and led to increases in the state’s bond rating for the first time in 20 years.
“Government does its best work when it’s bipartisan,” Candelora said. “We were at a point in time last year that we were able to right-size our tax code for the state of Connecticut, and we were fortunate that that was able to be accomplished.”
Lamont stepped to the podium and echoed Candelora’s sentiments.
“We are much better off when we work together, and we worked together on this budget — and I think it’s making a real difference for people,” Lamont said. “I’m proud of where the state is today, especially compared to where we were.”
Senior citizens
The fiscal plan will help about 200,000 senior citizens by smoothing out the sharp “cliff” in the state income tax for those with income from pensions, Individual Retirement Accounts, and annuities, starting January 1. This will largely help individuals with federal adjusted gross incomes of $75,000 to $100,000 per year, as well as couples earning between $100,000 and $150,000. Seniors earning above those levels would receive no tax cuts.
The law calls for a four-year phase-out, meaning that taxpayers can deduct 25% of their IRA income for the 2023 tax year. That would increase to 50% for 2024, 75% for 2025 and then all IRA income in 2026 and into the future.
A single filer in the 2024 tax year, for example, with $80,000 in federal adjusted gross income that includes $50,000 in IRA income could deduct $13,750 of the IRA income, according to an example provided by state officials.
Senate majority leader Bob Duff said the tax cuts have helped his retired parents to remain living in their hometown of Norwalk.
“My mom was a school secretary for the Norwalk public schools for a couple of decades,” Duff said. “My dad had a regular job. So my mom had a pension. My dad had a 401 (k). It’s been a long struggle to ensure that we were able to, in our budget, make sure that their pensions, their retirement, and Social Security was not taxed. For the vast majority of the people of Connecticut, we have a budget now that ensures that they are not taxed. They have a little extra breathing room. … It allows seniors to live a better life than they normally would have.”
Earned income tax credit
At the opposite of the age scale from senior citizens, young children will benefit starting January 1 from relief in the Earned Income Tax Credit, which did not exist in Connecticut until enacted in 2011 under Gov. Dannel P. Malloy.
Starting from scratch 13 years ago, Connecticut will rank among the top five states with the highest rates on the credit, officials said. The increase will be to 40% of the federal EITC, up from the current 30.5%, as only those eligible for the federal credit can receive the state credit.
The credit goes to more than 200,000 filers who are low-income workers, and 95% of the recipients are families with children.
For years, Connecticut had no state credit because it was blocked in the state legislature and had been opposed by Republican governors John G. Rowland and M. Jodi Rell. The measure was finally approved under Malloy.
The amount of the credit has changed multiple times through the years, depending on the state’s up-and-down budget fortunes and decisions by the legislature. The credit had dipped in some years to a low of 23% and now will be 40%.
Tax package
The overall tax reduction for 2024 will be $460 million, officials said.
The plan makes the state income tax more progressive, meaning that the rich will pay higher income tax rates than the poor. The highest eligible rate is currently 6.99% on all income; those filers would not benefit from the upcoming cuts in the 3% and 5% rates because they do not pay those rates and instead pay 6.99%.
The wealthiest, particularly Fairfield County millionaires and billionaires, currently pay the lion’s share of the state income tax.
Overall, the top 2% of Connecticut tax filers paid 40% of the state income tax in 2020, according to statistics from Lamont’s budget office. At the other end, the bottom 54% of filers — representing more than half of the total — paid 4% of the income tax. The 4% of taxes are paid by more than 900,000 filers who earn less than $50,000 per year in adjusted gross income, including both singles and couples filing jointly. As a result, the top 50% of taxpayers pay 96% of the income tax bill.
Minimum wage and other new laws
In addition to the tax laws, 2024 marks an increase in the deposit on bottles and cans to 10 cents, the first increase since the bottle bill law took effect in 1980. Consumers can receive 10 cents when they return their cans, even if they purchased the item in 2023 and paid only 5 cents for the deposit.
As part of a long-running law that provides phase-ins, the state’s minimum wage will increase to $15.69 per hour on Jan. 1, up from the current $15 per hour. The law, initially passed in 2019, enacted annual raises and then called for further increases that are based on the federal employment cost index.
Another new law calls for requiring all towns to fund the state firefighters cancer relief account, which is designed to help cancer-stricken firefighters. The contributions are based on the number of volunteers and professional firefighters in each town.
Overall, the law touching the most residents is the tax cuts, which were part of a bipartisan, two-year, $51.1 billion budget that was approved by the state Senate by 35-1 with one Republican against. The House approved the measure by 139-12.
Democrats hailed the 832-page package with 425 sections of spending and taxing priorities, while some Republicans said the tax cuts should have been even larger since the state has generated record budget surpluses.
The budget includes blocking a scheduled increase in the diesel tax that is largely paid by truckers, reducing fuel taxes on jet fuel for airlines, and continuing the cap on car taxes that benefits high-tax municipalities like Hartford and East Hartford.
Senate Republican leader Kevin Kelly of Stratford said the tax cuts should have been deeper, but Democrats said it was important to set aside more money to pay down pension debt, which has now reached $7.7 billion in additional payments to the once-troubled pension fund.
“While $600 million in tax cuts is a good start, we must not forget those in need especially at this time of the year,” Kelly said. “Too many of our neighbors cannot afford the basics: heat, health care, groceries, and medical costs. People are deciding every day whether to heat their homes or put food on the table. They are struggling with the high cost of inflation, especially at the grocery store. More can — and must — be done to provide these families with the relief they need.”
Christopher Keating can be reached at ckeating@courant.com
