Popular Tax Credits on the Budget Chopping Block?

As the Malloy administration begins to flesh out the details of a deficit mitigation plan with legislative leaders, the question of whether two tax credit programs popular with middle- and low-income people will fall victim to filling the budget hole this year and next. The earned income tax credit (EITC) which benefits the working poor, and the property tax credit enjoyed by middle income taxpayers, will get a hard look. The governor wants to cut another $242 million after already using his authority to cut $123 million. Just how much the state is in the red seems to be a moving target. See the details here.

EITC is the more likely to be cut. The program has been in effect for only two years. It puts money in the pocket of those at the bottom on the income scale. Supporters say it can help those folks catch up with rent, make clothing purchases for kids, pay for car repairs and many other expenses. It also helps the economy as the money is put back into local businesses. But it also costs the state $110 million in the current fiscal year. It’s currently pegged at 30 percent of the federal EITC. The governor and legislative leaders could reduce the amount or eliminate the credit all together. Republicans generally hate the state EITC, saying it gives money to people who pay no income taxes (because their income is too low). With the currently budget deficit, EITC might get the ax.

The property tax credit against taxpayers’ income tax is an always well-defended program. It allows taxpayers to use a credit of up to $300 against their income tax liability. It was put into effect when the state income tax was enacted as a way to lessen the blow on the middle class. As of now, Malloy’s people say it will be protected and will not be touched. “It’s a pretty solid ‘no’ as to being cut,” one official says. Republicans have targeted the credit in past budget years and Malloy has never been married to it. He had originally proposed to get rid of it altogether in his first budget proposal but ended up reducing it from $500 to the current $300. The credit costs the state $150 million this year according to the General Assembly’s Office of Fiscal Analysis.

There has been a lot of “let’s work together” talk from the minority Republicans, the majority Democrats in the legislature and the Malloy administration on filling the budget gap. That might be short-lived. Republicans will likely look to simply cut spending. Democrats will want to save existing social programs. The special session is Dec. 19th.

Malloy has said there will be no increase in taxes. However, that applies only to new taxes or increased rates on existing taxes. It’s doesn’t mean people won’t be paying more.

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