The House approved a tax package on Thursday that would raise $27 million in fiscal year 2014 and $32 million in 2015.
In the first year, the legislation raises sales and cigarette taxes and a slightly higher, one-year assessment on restaurant meals. In year two, a cap on itemized deductions and other changes to the income tax will draw $27 million in new revenues. That increase is counterbalanced by a repeal of the $15 million employer assessment for the Catamount Health program.
The most controversial provision in the bill was the repeal of a moratorium on the so-called cloud tax. If the House proposal moves forward, a sales tax on downloaded software would be assessed. The tax raises about $1.5 million.
Under the House plan, sales taxes would be expanded to include: candy, soda, bottled water, dietary supplements and clothing purchases of more than $110.
The new sales taxes raise $11.3 million. A third of all sales taxes go to the Education Fund.
The meals tax would go up from 9 percent to 9.5 percent for one year (which raises $4.2 million) and a vending machine meals tax would also go into effect ($1.2 million).
Taxes on cigarettes would increase 50 cents a pack from $2.62 to $3.12 and smokeless tobacco and snuff would go up 70 cents from $2.24 to $3.12. Together, the higher tobacco taxes would generate about $6 million in new revenues for the state.
The income tax changes for fiscal year 2015 include a “pull up” that would fuse the bottom two tiers of the state’s five marginal tax rates for high income earners; a merger of the 8.8 percent bracket into the 8.95 percent bracket, which would reduce the total number of income tax tiers to four; and a cap on itemized income tax exemptions of 2.5 times the standard deduction. These changes would create $27.4 million in new taxes on top of the $23 million increase in sales taxes for 2015.
The House Democratic leadership says raising taxes, putting more money in reserves, and curbing new spending as proposed by Gov. Peter Shumlin, also a Democrat, is the responsible thing to do at a time when the nation’s economy is still growing very slowly and the federal government is threatening cuts to state funding.