State legislators are focused mainly on spending now, trimming their requests to compromise soon with Gov. Ned Lamont on a new two-year budget.

But with just over one week left in the 2025 session, one popular tax-cutting idea is still alive: a new credit for low- and middle-income households with children.

Leaders of the Senate and House Democratic majorities were cautiously optimistic about the child tax credit, though the full program likely would need to be phased in over several years.

The initial $150 per child income tax break under consideration would cost state government $83 million per year, even as looming federal Medicaid cuts could cost Connecticut hundreds of millions in annual revenue. But given the unprecedented surpluses the state has amassed since 2017 and the extremely conservative revenue growth the Lamont administration has projected during its six years, lawmakers say Connecticut can afford this relief.

“We are trying very hard to protect that tax credit the best that we can,” said House Speaker Matt Ritter, D-Hartford.

“It still is a reasonable objective,” said Senate President Pro Tem Martin M. Looney, D-New Haven, who said working families here needed more relief long before President Donald J. Trump and Congress began planning huge cutbacks in Medicaid, food stamps and other social assistance programs.

“The pressures [on working families] are going to be extreme, and we hear all the time about the potential Draconian, punitive choices” federal cutbacks will force upon them, Looney added.

Lamont’s budget spokesman, Chris Collibee, said only that tax proposals remain part of ongoing budget negotiations among the administration and legislative leaders. The governor proposed boosting a different state income tax credit, one that offsets a portion of municipal property tax bills, from $300 to $350, while also broadening eligibility. 

Connecticut is the only state with a broad-based personal income tax that doesn’t account for the cost of raising children. Many Democratic lawmakers here largely have endorsed offering a $600-per-dependent credit with relief capped at $1,800 per household.

But because of the uncertainty surrounding federal funding, the General Assembly’s Finance, Revenue and Bonding Committee endorsed a less costly $150-per-child credit starting with 2025 earnings and tax returns filed in the spring of 2026, with a maximum household benefit of $450.

It would be available to single parents earning up to $100,000 per year and couples earning up to $200,000, starting with 2026 earnings.

The credit would be gradually phased out above those income levels. For every $1,000 earned above those thresholds, households would lose 10% of the credit’s value.

The credit also would be refundable. Even if a household earns so little it has no state tax liability to reduce via the credit, it still would have $150 per child added to its refund.

Nonpartisan analysts project this tax break would cost government about $83 million per year, about the same as Lamont’s plan to expand the property tax credit. It’s also roughly one-quarter of what legislators anticipate the state would lose with a full $600-per-child benefit.

And while the finance committee measure wouldn’t order increases in the credit in future years, many supporters say proposals to increase the credit would enjoy strong backing down the road.

Rep. Jillian Gilchest, D-West Hartford, co-chairwoman of the Human Services Committee and another backer of the $600-per-child benefit, predicted most Democrats won’t be satisfied for long with “an austere child tax credit” given likely federal cutbacks in health and human service programs. 

“More people are going to feel the pain of these [federal] budget decisions,” she said.

Reformers have been clamoring for a child credit in recent years as public and private analyses show Connecticut’s state and municipal tax systems, combined, disproportionately burden the poor and middle class.

The Department of Revenue Services’ 2024 report found the lowest-earning 10% of households effectively spent almost 40% of their income in 2020 to cover state or municipal tax burdens, more than five times the rate faced by Connecticut’s highest earners and two-and-a-half times the statewide average.

Even one of the largest state tax cuts in 2023, which included the first income tax rate reduction since the mid-1990s, only slowed — but didn’t reverse — the ever-widening shift onto working families, according to a 2024 analysis from Connecticut Voices for Children, a progressive New Haven-based policy group.

The United Way of Connecticut, one of the progressive groups spearheading this year’s push for a child tax credit, released a report last October showing that a family of four — two parents and two children — needed to earn $113,520 in 2022 in this state to cover a basic “survival budget.”

The United Way’s methodology covers housing, food, utilities, transportation, child care and — assuming the family can’t afford a computer — at least one smart phone. By comparison, the Federal Poverty Level, a simple metric developed in the mid-1960s by U.S. Social Security Administration economists and based largely on the cost of a minimum food diet, said a family of four earning more than $27,750 in 2022 was above the poverty line.

“On a good day, 42% of Connecticut families with children struggle to make ends meet,” said Lisa Tepper Bates, president of the United Way’s Connecticut chapter. “The proposed cuts to Medicaid and SNAP will hit many Connecticut families hard. And ongoing economic upheaval and rising prices affect every family in our state. Creating a Connecticut child tax credit has never been more important.”

CT has underestimated tax revenues by wide margins

Legislators also were optimistic that Connecticut could afford to provide a child tax credit, even given the uncertainty of federal funding, given its budget caps and its track record of projecting revenues since Lamont took office in 2019.

These caps have generated surpluses averaging $1.8 billion, an amount equal to 8% of the General Fund, since they last were set in 2017. The administration is projecting a $2.4 billion surplus this year, equal to 10%. Analysts project budget caps will capture at least about $1.3 billion in each of the next two fiscal years.

Connecticut has funneled $12.5 billion in surpluses since 2017 to build reserves and scale back pension debt, a furious pace that far outstrips any similar effort in modern history. 

Critics say the state has overcompensated for fiscal mistakes of prior decades and is saving excessively now at the expense of core programs and tax relief for the poor and middle class.

The state also has been extremely conservative in its revenue projections in recent years.

Legislators largely build the budget each year using an April 30 forecast prepared by their nonpartisan Office of Fiscal Analysis and by the governor’s budget staff. The basis for that forecast is income and other tax data provided by the administration, particularly the Department of Revenue Services.

Connecticut has amassed large surpluses in each of Lamont’s six years in office. Most of those surpluses turned out to be significantly larger than projected on April 30. The state’s fiscal year ends June 30, and the comptroller formally closes the books in late September.

Since Lamont has been governor, the actual surplus has topped the April 30 projection by an average of $600 million per year.

But 2020 and 2021 were outliers. The coronavirus led officials to push the 2020 income tax filing deadline back from Apil 15 to July 15. And in 2021 they moved it to May 15. In both cases, that meant analysts had limited data to build their projections.

But even if those two fiscal years are removed, the average increase in surplus after the April 30 projection has been $375 million.

“I believe it’s realistic to continue to talk about a phase-in” of a larger child tax credit, Looney said, noting that the average surplus in recent years far exceeds the cost of helping working families.