House passes $27 million tax proposal

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 loose change department

The loose change department

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.

Follow Anne on Twitter @GallowayVTD

Comments

  1. rosemarie jackowski :

    What a sticky situation… Is a candy apple candy or is it fruit? Taxing meals discriminates against the homeless and those without cooking facilities. Taxing soda – a really hard-hearted idea. Imagine going through colonoscopy prep without ginger ale. Taxing vitamins is probably the worse idea of all.

    http://dissidentvoice.org/2010/03/let-them-eat-cake-2/

  2. Lester French :

    Taxes piled on top of more taxes! The result will be to drive more people to shop across state lines.

  3. Jim Barrett :

    Finally another bunch of new taxes while the phonies in Montpelier claim to be very thrifty and careful with your money. The thieves take and take by a simple vote while you and your neighbors fight to above the debts. I have said this before and it needs to be repeated: Many of you who will be complaining about the new taxes on top of taxes VOTED for these representatives because they had a Democrat or a Progressive next to their name so enjoy your new found poverty.

  4. John Greenberg :

    I am pleased to see that the House wisely decided that higher income earners need to pay more taxes, both because tax progressivity is fair and because, as the saying goes, “that’s where the money is.”
    While simply raising the top marginal rate would have been a good deal simpler, I also understand the politics which dictated merging the top two rates and eliminating the effects of the lowest brackets for the taxpayers in the top rate category.
    The net effect of these 2 changes is, as far as I can see, little different from a straightforward increase in the top marginal rate. As far as I can fathom, all similarly situated high income taxpayers will see identical tax bill changes.
    But while the 3rd change – limiting deductions to 2.5 times the standard deduction — also has the overall effect of raising taxes on top income earners, it clearly WILL have other impacts. In particular, this change will have huge impacts on SOME upper bracket taxpayers, little on others, and none on still others.
    Among other things, such a change will simply eliminate the Vermont tax benefit for especially high medical expenses. (In order to be deductible in the first place, medical expenses must exceed 7.5% of AGI (10% starting with 2013 taxes)). This change will mean that those with medical bills in the hundreds of thousands of dollars for a given year will no longer be able to deduct more than 2.5 times the standard deduction amount and that, in additional, they will lose all other deductions that would have been allowed under existing law.
    The same reasoning pertains to charitable deductions above 2.5 times the standard deduction. Since the point of the charitable deduction in the first place is to encourage the private sector to accomplish things which might otherwise become a governmental responsibility, that seems to me to be a highly questionable policy.
    Did legislators really think clearly about these implications before making this change? It’s possible that they did, and they consciously decided that the changes are desirable (though frankly, I fail to see how they are). There’s no evidence in any of the press coverage I’ve seen that they considered what appear to be the unintended consequences of this 3rd change at all.
    Here, as elsewhere, the devil is in the details.
    Accordingly, I hope that senators will take a second look at the details of these changes and make certain that they accomplish precisely what is intended with no unforeseen consequences.

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