Governor’s Budget: Tax Relief, Housing, Workforce

Issues & Policies
“Focus on economic growth:” Gov. Lamont presents his budget Feb. 8.

Gov. Ned Lamont’s proposed two-year, $50.5 billion budget features income tax cuts, a small business tax boost, and investments in housing and workforce development.

Lamont’s budget proposal cuts taxes by more than $500 million while increasing state spending 3.5% in fiscal 2024 and 1.8% the following year.

“My primary focus for the next two years, and beyond, will be economic growth and inclusive opportunity,” he told a Feb. 8 joint session of the General Assembly. “That is what my proposed budget will deliver.

“For the first time in over a generation, Connecticut has enjoyed strong economic and population growth—more taxpayers, a growing economy, coupled with our shared fiscal discipline, has resulted in four consecutive balanced budgets—soon to be five.

“Building off this momentum, my budget continues to grow the economy through a middle-class tax cut, investments in our young families, education, workforce training, workforce housing, and helping families eliminate medical debt.”

Tax Relief

The proposed budget features the first significant cut in state income tax rates since the income tax was implemented in 1991.

Under the proposal, the 3% income tax rate drops to 2% while the 5% rate falls to 4.5%, saving 1.1 million of Connecticut’s 1.7 million tax-filing households $436 million annually.

Administration officials said most couples filing jointly will save up to $600 annually, with single fliers saving approximately $300.

Lamont’s budget proposal returns an estimated $60 million annually to 123,000 small businesses.

Lamont also wants a 31% increase in the earned income tax credit, with families earning less than $50,000 annually paying no state income taxes and those earning less than $60,000 getting a 20% cut.

The budget proposal features good and bad news for the state’s job creators, with Lamont returning an estimated $60 million to 123,000 small businesses annually by fully restoring the pass-through entity tax credit.

Restoring the credit is one of CBIA’s 2023 Transform Connecticut policy solutions. The pass-through entity tax—implemented in 2018 to offset federal tax changes—will also be optional under the governor’s proposal.

Corporate Tax Surcharge

However, the governor’s budget again extends the temporary corporate tax surcharge—first implemented in 2008—through fiscal 2025, costing businesses $130 million.

CBIA’s Eric Gjede said the governor’s budget recommendations included “a number of positives.”

CBIA's Eric Gjede reacts to the governor's budget
“Number of positives:” CBIA’s Eric Gjede talks with WFSB’s Susan Raff.

“Particularly the individual tax relief measures and the full restoration of the pass-through entity tax credit—which will give struggling small businesses a much-needed boost,” Gjede said.

“It’s critical that policymakers fully leverage the state’s robust fiscal health and continue pursuing solutions for addressing the labor shortage crisis and positioning our economy for strong growth.

“As the budget proposal moves through the legislative process, we also urge lawmakers to allow small businesses access to R&D tax credits, repeal the sales tax on workforce training, and finally sunset the temporary corporate tax surcharge, which has long sent the wrong message about our business climate.”

Business Tax Changes

Other business-related tax changes featured in the governor’s budget include:

  • Sections 4 and 5 increases the tax credit for human capital investments—such as workforce development and training—from 5% to 10%
  • Increases that credit to 25% for employer costs related to establishing a daycare or subsidizing employee child care.
  • Unfortunately, the human capital credit is limited to corporate entities, with small businesses registered as pass-through entities unable to take advantage 
  • Section 7 to 8 limits the angel investor tax credit for qualified cannabis related businesses to investments made prior to July 1, 2023
  • No additional funding to address state’s pandemic-related unemployment fund loan debt

Workforce, Economic Development

Lamont’s budget also proposes a range of workforce and economic development initiatives, including:

  • $823.3 million in bonding to support economic development projects
  • Making the Office of Workforce Strategy, currently housed within the governor’s office, a standalone agency
  • $1 million to expand the Healthcare Workforce Recruitment campaign to out‐of‐state markets
  • $10 million for the Department of Labor’s Connecticut Youth Employment Program
  • $18 million for youth workforce transportation assistance
  • Continue the 50% tax credit for employers that help in-state graduates retire Connecticut Higher Education Supplemental Loan Authority debts

In addition, Lamont proposed increasing the $2.2 billion Education Cost Sharing program by $46 million annually and funding for initiatives that lower healthcare and energy costs.

Workforce Housing

The lack of available housing, one of the factors driving the worker shortage, drew special attention in Lamont’s budget recommendations.

“Millions of dollars for workforce training will go to naught if we don’t have enough housing where workers can afford to live,” he told lawmakers.

“Last year we built more market rate and affordable housing than any time this century, yet we are still desperately short of housing.

“Having just climbed out of a fiscal crisis, I don’t want to fall into a housing crisis.”

Lamont proposed nearly doubling state investment in affordable housing development to $600 million over the next two years, increasing the number of new housing units by 6,400.

“I will also urge mayors and first selectmen to develop and act on a plan of their own where they will allow more housing in their community through friendlier zoning and expedited approvals,” he said.

“Towns may submit their plans to facilitate housing on their terms. Doing nothing is not an acceptable strategy.”

Fiscal Guardrails

Connecticut’s fiscal health is the strongest in decades, with a maximum $3.3 billion in the state’s rainy day fund and a projected $3.2 billion surplus for this year, the second-largest in history.

That fiscal position draws much of its strength from the bipartisan budget reforms adopted by the legislature in 2017 that were set to expire this year.

Lamont’s budget proposal referenced a deal reached with legislative leaders earlier in the week that extended those reforms for another 10 years.

“These guardrails have contributed to a full rainy day fund which provides protection in case of unforeseen risk,” he said.

However, after protests from the State Employees Bargaining Agent Coalition and some progressive lawmakers, the administration and legislative leaders negotiated a last-minute compromise.

The state House and Senate unanimously approved that compromise Feb. 9, extending the reforms through June 30, 2028 and then for another five years unless the General Assembly votes against an extension.

For more information about tax policy, contact CBIA’s Eric Gjede (860.480.1784) | @egjede. For more information about state spending, contact CBIA’s Ashley Zane (860.244.1169) | @AshleyZane9.


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