Gas tax cut to continue, state child tax credit created in $24.2 billion budget deal announced by Connecticut Gov. Lamont, Democrats

After months of hearings, deliberations and negotiations, Gov. Ned Lamont and top Democrats announced a deal Wednesday for a new $24.2 billion state budget that would cut taxes for parents, drivers, residential property owners, retirees, and car owners.

The overall tax-cut package would be about $500 million that both Lamont and legislators have been pushing in an election year.

The most immediate impact on drivers would be the extension of the suspension of the state’s 25-cents-per-gallon gasoline tax until Dec. 31. Drivers are not currently paying the tax, and the extension will save them a combined total of $150 million through year’s end, Lamont said.

The tax cuts would include a credit of $250 per child for up to three children under the age of 17 for the first time in state history. The state tax credit would last for one year in the 2022 calendar year due to the additional cost, but it would be in addition to the federal credit for children.

The tax cuts are possible because of a quickly growing state budget surplus and more than $2 billion in federal stimulus funds over two years that have helped fund numerous programs across the state.

Rep. Sean Scanlon, a Guilford Democrat who co-chairs the tax-writing committee, said that withdrawals from 401 (k) plans would no longer be subject to the state income tax for senior citizens in a phase-out through 2024.

“We have $40 million to eliminate pension taxes for middle-class retirees so they don’t move to Florida. We want to keep those folks. We want to make it more affordable for retirees.’'

Lawmakers agreed to Lamont’s proposal to increase the property tax credit on the state income tax to a maximum of $300 per tax return, up from the current $200. But the bigger change is a large increase in eligibility for most residential property owners. Currently, the credit is allowed only for those over 65 years old and those with dependents. Now, the eligibility would be subject only to income limits and not to age or family configuration.

In another high-profile move, the package would provide tax cuts for cars in about 75 of the state’s 169 cities and towns.

Communities with a mill rate higher than 32.46 would benefit, but there would be no relief for wealthy, low-tax-rate towns like Greenwich, New Canaan, Darien, and Westport.

For towns with a mill rate of 50, for example, the rate for drivers would be reduced to 32.46, and the state would reimburse the towns to make up for the tax revenues that the towns would lose

The budget represents a 2.5% spending increase that is lower than inflation and complies with various caps that are designed to hold down state spending, said Jeffrey Beckham, Lamont’s new budget director.

“The budget is like a big, three-dimensional puzzle with a lot of moving parts,’' Beckham told reporters at the Capitol. “It was very complicated. But we’re there, and it’s a good day.’'

Legislators had been discussing whether to approve the budget in the House of Representatives on Saturday, but that might be postponed because of an expected rally at the state Capitol that could involve hate groups, lawmakers said.

“It’s pretty scary,’' House Speaker Matt Ritter of Hartford said.

Instead, the budget votes could be held Monday and Tuesday in the two chambers.

For weeks, lawmakers had clashed over a previous maximum cap of $180 million in tax cuts because more than $2 billion in federal stimulus money over two years cannot be used directly for tax cuts. But now that cap is expected to increase sharply, officials said. In addition, the child tax credit will be able to start in the 2023 fiscal year that starts in July — rather than being pushed off into the future.

The fiscal change represents a dramatic turnaround from years of tax increases under then-Gov. Dannel P. Malloy.

The budget will also include keeping the earned income tax credit to 41.5% — far higher than in recent years. Several Connecticut governors were historically against the credit before it was finally approved in 2011 under Malloy.

Using federal money, Lamont retroactively increased the state credit for the 2021 calendar year to 41.5% of the federal credit. Advocates note that other states also have generous programs, including 40% in New Jersey. By 2023, the rate in South Carolina is expected to jump sharply to 125%, officials said.

In Connecticut, the number has changed multiple times over the past decade, depending on the state’s budget fortunes and decisions by the legislature. The credit has gone from 23% to 30.5% before 41.5%.

Lawmakers had originally called for a maximum credit of $600 per year per child, but that proved to be too expensive as a compromise brought the total to $250 per child. The measure would impact an estimated 600,000 children in the state.

Single mothers and fathers earning up to $100,000 per year would be eligible for the credit, along with families earning up to $200,000 per year. Three states currently offer their own child tax credit, including California and New York.

Christopher Keating can be reached at ckeating@courant.com