Progressive lawmakers demand that administration shelve tax credit cut

Sen. Anthony Pollina, D-Washington, talks to reporters on Jan. 15, 2013. Photo by Nat Rudarakanchana

Sen. Anthony Pollina, P/D-Middlesex, talks to reporters on Jan. 15, 2013. Photo by Nat Rudarakanchana

Progressive lawmakers sharply criticized the Shumlin administration’s proposal to take $17 million from a popular tax credit program to invest in childcare assistance, describing the proposal as a targeted tax increase on the state’s poorest residents.

“We disagree strongly with the proposed funding mechanism for early education,” said Sen. Anthony Pollina, P/D-Middlesex, at a Statehouse press conference. “Diverting money from the earned income tax credit is essentially a new tax that is going to hit about 40,000 Vermonters, particularly those who are least able to afford it.”

After Pollina described the proposal as actually “worse than a broad-based tax,” alluding to Gov. Peter Shumlin’s pledge not to raise such taxes, Rep. Chris Pearson, P-Burlington, added that the administration’s plan “is not a serious proposal.”

“I have yet to hear from any Democrat that supports this idea. Republicans have articulated their concerns, and Progressives are solidly opposed to this funding scheme,” said Pearson. “There is no reason to cut the most effective anti-poverty program in Vermont.”

Accompanied by a handful of other lawmakers, Pearson and Pollina tentatively suggested increasing the income taxes for those earning over $200,000, by less than 1 percent, ending tax loopholes for the wealthy and large corporations, and reforms to the capital gains tax.

But more detailed proposals would only emerge within the next two weeks, said Pearson. In the meantime, the Shumlin administration’s proposal has already generated opposition from advocates and raised eyebrows from some lawmakers.

After the Progressives made their case, Agency of Human Services Secretary Doug Racine told reporters that state officials wanted to divert funds from the EITC because they believed that’d make the most of limited dollars for state services.

Racine said only the governor could say whether alternative funding proposals would be seriously considered. He added that the proposal would mean a 15 percent reduction in tax refunds and credits for those already using the EITC, but clarified that the federal EITC would remain untouched.

Sen. Tim Ashe, D/P-Burlington and Senate finance chair, said the more basic question of whether lawmakers want to fund an ambitious $17 million investment in the first place remains unanswered.

“The Legislature has to start by saying: Do we want to increase child-care subsidies?” said Ashe.

“There’s this assumption that everything the governor said made sense, that it’s just a matter of coming up with $17 million,” said Ashe. “Question one is: Do we want to come up with $17 million? Why is it $17 million and not $20 million or $5 million?”

Ashe himself hasn’t decided yet whether the $17 million figure is a suitable target. He’s also wary of pronouncing definitively who would win or lose under the administration’s proposal because he says not enough facts have emerged.

Still, Ashe said: “I agree, in spirit, that the initial reflex of the Legislature should be: Prove it to me. Prove to me that this makes any sense whatsoever, to take from EITC.”

Ashe said his committee planned a serious review of the state’s tax exemptions, to see whether extra funds could be freed up there by slashing arcane and outdated exemptions. But he didn’t know how much might become available, or whether that money might fund child-care subsidies or other state programs.

Pearson, meanwhile, said that the charged proposal could be a well-placed political ploy.

“Gov. Shumlin is a skilled politician, and I fear this is a diversionary tactic,” Pearson said. “Perhaps he hopes his laughable revenue plan will be enough to distract lawmakers and advocates from the budget cuts we expect next week.”

According to Racine, spending on EITC has increased by 45 percent since 2005. The tax exemption for low-income Vermonters is by far the most expensive tax credit for personal income for the state, costing Vermont about $25.6 million annually.

The next most costly state tax expenditure on income, the capital gains tax exclusion, cost Vermont about $8.5 million in fiscal year 2011, according to the state’s latest report on tax exemptions. The state lost out on $282.9 million thanks to property tax exemptions in fiscal 2012, and lost a potential $560 million through sales tax exemptions in fiscal 2011.


Nat Rudarakanchana

Comments

  1. Tom Pelham :

    Nat…..in the interest of context and full disclosure. Yes, the capital gains exclusion in 2011 was $8.5 million, but what’s the trend? The Tax Department’s expenditure reports show the following history of tax expenditures for capital gains.

    2011……………..$8,544,200
    2010……………..$13,533,900
    2009……………..$31,047,600
    2008……………..$61,150,300

    Effective July 1, 2009, the legislature changed Vermont’s capital gains exclusion law by phasing out over the following 18 months the 40% exclusion, with a few exceptions,in favor of a flat $5,000 exclusion. Certainly, a peice of the above trend is attributable to the economic downturn, though 2010 and 2011 were supposedly years of recovery. However, most of $52 million reduction in this benefit is certainly due to the elimination of the 40% exclusion, yielding millions to the state treasury. Given the above, the legislature has already picked most of the meat from the capital gains bone.

    I do not believe, however that the legislature needs to agree to the Governor’s EITC proposal. I agree with Rep. Pearson that the EITC is an effective, as well cost effective, approach to rewarding work. Keep in mind that in the 8 years subsequent to 1991, Governor Dean managed to keep general and transporation fund spending increases to an average annual rate of 2.62%. During this period, he started VHAP, Healthy Babies, Success Beyond Six, and expanded Dr. D., and used cash to build the Springfield prison and purchase the Champion lands, among others. It’s certain that the $5 billion state budget is not so tightly wound that $17 million, or 3/10ths of one percent of the budget, can’t be found to fund one of the Governor’s top priorities, unless things are much worse than they appear.

  2. Ann Raynolds :

    Let’s not let this become some sort of party thing. As a Democrat I’ve been railing against this shift from the beginning. I call it “unconscionable” even to have considered it!

  3. Renée Carpenter :

    Thank you Progressives for standing strong and articulate on this one! And to Tom Pelham for adding facts and clarity.

    A big “Yes!” to “… increasing the income taxes for those earning over $200,000, …, ending tax loopholes for the wealthy and large corporations, and …” developing a financial transactions tax on non-utilitarian functions (i.e. on investment trades, NOT checking and savings accounts). It is about time!

  4. rosemarie jackowski :

    If mothers could stay home there would be less need for ‘child care’. No amount of money can make a child care provider love a child as much as most mothers do.

    How is the VT Office of Child Support Enforcement doing? In the past, it was very ineffective – a waste of taxpayer money. If Court Orders were enforced there would be less need of child care outside the home.

    In addition – some Grandmothers provide free child care to children, not only their own grandchildren. I have done that in the past. It was great for everyone.

    R Jackowski, Founder of Justice for Children – 1975

  5. Matthew Choate :

    Sorry Renee – I disagree with you on your “BIG YES to more taxes”. I make a good salary but I also have live with a tremendously narrow margin. I pay not only substantial amounts of Federal and State income taxes, but plenty of property, fuel, sales, and services taxes too. I am also “privileged” enough to then have to pay for health insurance premiums, repay school loans equal to a mortgage (for which I got ZERO help), and typical living expenses. It’s easy to say kick the burden of carrying those with limited means onto those who make more money, and I am happy to pay my share, but most of these “progressive tax adjustments” go straight to those in the middle class and I, for one, am tired of always having to pony up more and more. Lets look at exemptions for businesses and high wealth people, but lets also look at how we spend our tax $$ and if we in fact get a good return on what we distribute.

  6. Michelle Fay :

    Matt, I agree that we have to be very careful about adding to the tax responsibilities of people in the middle class. Many of us are in that income zone that makes paying for basic needs as costs skyrocket. But income of $200,000 would put someone in the top 5% of earners – not what I would call “middle class.” Something has to be done to reverse the growing and unsupportable gap between the poor and affluent.

    As to the subject at hand, I’m strongly in favor of additional investments in early education, and just as strongly opposed to the use of the EITC to fund it.

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