Senate Finance gives initial nod to $10 million tax package

UPDATE: H.528 was passed out of the Senate Finance Committee in a 6-0-1 vote on Friday.

The Senate Finance Committee has finalized a $10 million tax package.

The bill, H.528, also known as the miscellaneous tax bill, puts a cap on mortgage interest deductions, makes bottled water subject to the sales tax and puts a 3 percent excise tax on satellite television service. The revenues will go to the General Fund.

In a straw poll Thursday evening, Senate Finance voted 6-0-1 to support the proposal.

Sen. Tim Ashe, chair of Senate Finance, shepherded the bill through after weeks of testimony and deliberation. Ashe, who is a member of both the Progressive and Democratic parties, said he worked to create a “fair and equitable” tax package that raised as little as possible. The state faces a General Fund budget gap of about $10 million this year, as a result of a revenue downgrade.

“One of our goals as a committee was to make decisions based on fairness and equity, but also in the confines of the governor’s stated parameters,” Ashe said. “I know that we may also have some dispute over some of the provisions but our goal was to fit into the limitations of the administration. From day one we said we do not need make tax rate increases if we could create more equity within the system.”

State Senator and Burlington mayoral candidate Tim Ashe. Courtesy photo.

State Senator Tim Ashe. Courtesy photo.

Gov. Peter Shumlin, a Democrat, has insisted that the state cannot afford to raise broad-based taxes, i.e., income, sales and rooms and meals taxes because Vermonters are already taxed out. His proposals — using a low-income tax credit and a 10 percent break open tickets tax — have, however, been rebuffed by lawmakers. Last week, the administration offered more conciliatory revisions to their proposals.

The Senate Finance bill was finalized after the governor’s press conference.

When asked what he thought of some of the proposals on the table, Shumlin said: “I’m sort of in a ‘probably maybe’ world. … Until they vote a bill out, I’m going to be very careful about commenting on what they’re doing, because I don’t have any better sense really of what they’ll actually do than you do.”

The proposed mortgage deduction cap is $12,000, and it is combined with a 3 percent minimum tax for Vermonters who have adjusted gross incomes of more than $125,000. Together, the income tax changes generate about $7.4 million. The mortgage deduction cap would affect about 5 percent of tax filers, or roughly 14,000 out of 343,000 people who file income taxes in Vermont.

The proposal was designed to increase tax contributions from more affluent taxpayers without raising rates, Ashe said.

“We weren’t saying let’s go sock people because we need to find money,” Ashe said. “The mortgage interest deduction is there to help middle class people by homes in an affordable way. We’re making it more like what it was intended for.”

“In the case of the minimum payment, we’re saying, yes, we agree with Gov. Shumlin and former Gov. Douglas,” Ashe said. “Some vermonters at the highest income are paying the highest taxes in the country, and it’s not good enough to go back to them again, going back to the well, so to speak. Instead, some of their counterparts who have incomes that are roughly similar have very very low effective tax rates so it was trying to bring some equity within those income levels.”

Jeb Spaulding, secretary of the Agency of Administration, gave an equivocal reaction to the mortgage deduction proposal: He said the administration’s view hasn’t changed. If it “falls into the category” of raising income, sales or meals taxes, he hinted the governor could reject it, but Spaulding said, “In this stage in the process, it doesn’t really contribute to reaching an agreement, for us to pick apart each individual section of the bill.”

The bill also eliminates an exemption of the 6 percent sales tax on bottled water. The provision raises about $1.2 million.

“We agreed with the House not to raise $1.2 million as a way to capture negative costs associated with bottled water that don’t get captured like other bottled drinks do with redemption,” Ashe said.

The 3 percent excise tax on satellite television service would raise about $1.3 million. The first $40 of a consumer’s monthly bill would be exempt from the tax. Sen. Mark McDonald, D-Orange, said it is unlikely that the tax would affect consumers. The satellite companies, he said, typically absorb the cost of excise taxes and don’t increase rates. Cable companies pay a 5 percent franchise tax. “We’re just trying to create some parity there,” Ashe said.

Ashe and his committee met with Gov. Peter Shumlin on Thursday morning to discuss the bill, and later that afternoon, Jeb Spaulding, the secretary of the Administration made a last-ditch effort to persuade the committee to adopt a bank franchise tax that would have been assessed on state’s five biggest banks. Spaulding said it was appropriate to raise the tax because bank profits are up and the state hasn’t increased the rate in 16 years. The proposal would raise $2.4 million

The proposal was all but rejected. Sen. Kevin Mullin, R-Rutland, proposed that for now, the state should study the bank franchise tax.

On Wednesday, the committee accommodated Shumlin by eliminating a proposed $10.9 million tobacco tax increase on cigarettes and snuff from H.528. The proposal will be added to a technical tax or health care bill Senate Finance is set to review next week because, Ashe said, the tax hike is designed to deter Vermonters from smoking — not as a vehicle for raising revenue. Privately, committee members worried that the governor might veto the miscellaneous tax bill if it contained the tobacco tax.

The Shumlin administration’s 10 percent, then 6 percent break open ticket tax proposal was reduced to a mere $400,000. The Senate panel voted to place a 3 percent excise tax on tickets sold in bars; clubs, like the American Legion or the Elks, would not have to pay a tax.

The bill also includes a provision that requires nonprofit property owners to submit information about the insured value of Real Estate. Lawmakers want to ascertain whether there are discrepancies between insured and reported values.

The cloud tax is still up in the air. The committee voted 3-3 on an amendment that would have extended the current one-year moratorium another year, which means the issue will likely be a contentious matter of debate on the Senate floor. The Joint Fiscal Office estimates that a cloud tax would generate $1.5 million for the General Fund and $800,000 for the Education Fund. At this point, there is no revenue source to cover that cost in the tax bill. Ashe, however, says he believes the JFO estimates are high.

A change to the estate tax law in the proposal will eliminate the so-called “bubble.” Heirs of estates with between $2.75 and $4.5 million are subject to a much higher marginal rate than those who inherit estates of larger value. The heirs who land in the bubble pay an 18 percent to 35 percent marginal rate, while those who receive 10s of millions of dollars in estate money pay a marginal rate of about 15 percent. The proposed estate tax change would bring down the effective rate for heirs from a 6 percent to 12 percent range to between 1 percent and 9 percent. From year to year, the estate tax is an unpredictable source of revenue for the state. Typically, it generates about $12 million.

Senate Finance will take up the fee bill on Friday. The only controversial proposal is a 5 cent per gallon tax on water extraction that would generate less than $2 million in revenue for the state.

Next week, the committee will analyze the miscellaneous education property tax bill that was recently passed by the House.

Anne Galloway

Comments

  1. Peter Everett :

    Just a couple of questions, please some one answer:
    1.”Is there nothing these people don’t feel they need to
    tax”?
    This country was founded, in part, because of excess
    taxation.
    2. “Are we, the people, reaching the breaking point yet
    where we will finally say “enough is enough”?
    I worked hard to earn my money. I’d like to keep some of it and use on myself and family as I see fit. It really isn’t my responsibility to take care of the entire population of VT. What has happened to “self reliance”? Am I the only one to feel this way?

    Please, some one provide answers in a rational way.

  2. Penelope Chevalier :

    @petereverett, you already do not pay enough tax, the percent of tax we pay is extremely minimal compared to the past. And because of regressive attitudes like yours, we don’t have universal health care despite that it works better and cheaper than our current really stupid system. But ‘tax’ in this country is a dirty word, so we get far less than we pay for, you have no idea how much you’re actually paying needlessly but they’re not calling it ‘tax’, they call it ‘co-pays’, or ‘insurance’ or ‘administrative fees’. I’m not rich, but I wouldn’t mind paying a percent or two more in tax, I’m sure you’re wasting a great deal more than that and you wouldn’t even notice the difference. It’s completely stupid that we can’t tax soda and candy. We should add a dollar per unit. Completely and utterly shortsighted and fatal.

    • Peter Everett :

      Penelope:
      Since you tell me I don’t pay enough taxes, what do you think I should be paying? I’m sure you can come up with an appropriate amount for me, since it isn’t your money you will be taxing me on.
      Can I pay a tax on soda and candy? Sure. Will I? NO!! Not to benefit my health. Rather, I choose not to give gov’t more money.
      You think I waste a great deal, you don’t even know me. I don’t waste money. I’m too frugal. I don’t buy things on “impulse”. I know the difference between “want” and “need”. If I REALLY “need” it I may purchas it. If I “want” something I save for it. In most cases, by the time I have the money for it, I no long “want” it.
      You feel I’m shortsighted, that’s your opinion, and you’re entitled to it. I hold no grudges because of that.
      When “projected” revenues fall short of the expected, what will our leaders do next? Raise the Income Tax rates (that will create “expected” revenues based on past tax returns). Then they can keep these “new” taxes on us.
      I do not mind paying a “fair” share as long as gov’t is efficient(which it isn’t).
      I’ll bet if you were able to use my income, you would have a ball spending. Why, it’s not your money. That is the way gov’t runs. The money it collects isn’t theirs, so they feel free to do as they please, spend as they please. When they run short, they go for more insted of stopping.
      Can I pay more in Taxes? Maybe a bit more. I just choose not to until gov’t proves to the TAXPAYER, it is running as efficiently as it can, with little or no waste. Which they will never be able to do.
      I earned what I own, I want to own what I earned. Is that wrong? If I can do that I will have enough to help others as I choose. I give to organizations that run very efficiently and I’m generous to a fault. I just want to see what I give(gov’t or private)being utilized to the utmost. Obviously, you feel I’m wrong for feeling this way. I just don’t like WASTE!!!! Anywhere in my life.

  3. Emma Morgan :

    Those are actually statements phrased as questions. Unless I am misreading, it sounds like you are trying to say something rather than inviting input.

    This is what it sounds like you’re trying to say…

    1. It seems to me that too many things are being taxed and I believe that is contrary to the principles upon which this country was founded.

    2. I am tired of paying so much in taxes and I would like to rally my fellow taxpayers to revolt. Are you with me?

    I’ll leave others to respond to the meat of the matter, but I am offering these substitutions as a way to start a debate in a way that makes people feel that they can answer in more than one way.

    I’ll just say that “We the People” includes everyone in the United State, including folks who work in the government. It isn’t us against “them,” since they are US.

    I probably won’t make it back to defend myself, so feel free to attack, if that makes you happy!

    • Peter Everett :

      Emma:
      I do not mind paying taxes, if it is done efficiently. Unfortunately, there is far too much waste in gov’t. If audited, appropriately, gov’t should be able to see where waste is found. Is it really neccessary for multiple depts to oversee certain aspects of gov’t. Couldn’t one dept handle it well?
      I’m retired, hate to use the term on a “fixed income”. I’m not poor, as I’ve lived frugally throughout my career. Since I’ve retired 7 years ago, my income has remained stable, yet, my burden to all forms of gov’t has increased, as has yours.
      With each increase, I see, my ability to spend in our local economy decrease. A local, thriving economy concerns me more than tax increases. I have already begun to change aspects determining how I will best utilize my disposable income. The state can raise the gas tax, I just won’t drive as much. Purchases of Sales Taxable items will be for neccessity only, not because I want them (the retail prices always rise, thus higher tax revenue). Dining out may be less frequent. It might be once or twice a month instead of once a week.
      Each of my cuts in local spending hurts the local worker and employer. The Feds, State & local gov’t will still get my income and property taxes. That is a given.
      All other taxes, for the most part, have “projected” revenues. What happens when those projections fall short? Will gov’t look for other ways to raise, even more money?
      I’m not looking for a “revolution”. I want gov’t, in all forms, to sit down, really take a cold, hard look at ways to run efficiently. If we, the tax payer, don’t speak out and let our leaders know we are looking closely at how they utilize of tax revenue, they will continually waste what we give them. It’s not their money they take from us, its ours. They don’t care (Feds especially) how much they waste. This waste is going to kill our local economy. I want small, local businesses to succeed. We need them more than ever. They’re our life blood, here, in rural VT. How many large corps are here to employee residents?
      I’m sorry that I have to watch every penny I put into the economy. I’m sorry I feel I have to speak up. I’m middle, middle class. What descretionary income I have, I will be very frugal as how I use it. As far as taxes that gov’t projects I may give them, I’m sure will fall far less than expected. There is only so much money at my (and your) disposal. I also feel that far many more people are in my position and many will do, likewise, as I do. It’s not a radical position I take. It’s a position based solely on my economic situation. I would really love to be wrong. I just don’t think these “new” taxes will do as expected unless gov’t really takes a close, hard look at wasted money they collect. Sorry, I feel this way. My well is beginning to run dry. What happens when it does, to the majority of taxpayers? Will our economy grow or shrink? I want a prosperous economy, that is maintained by a strong local business environment. I don’t want a gov’t controlled economy. It’s not good for the people. Far too many regulations in our lives when gov’t controls the economy. If gov’t, eventually, controls the economy, I hope that I’m old enough to be fertilizing the ground. I don’t think I’d do well in that type of society. Too much “old time”, stubborn, self reliant yankee in me. Time will tell.

  4. rosemarie jackowski :

    If bottled water is taxed that is discrimination against those who have no other option (well maybe we could all just drink beer, but that is taxed too).

    Not every home in Vermont has access to municipal water. If some water is taxed, then ALL water should be taxed. BUT a tax on water makes as much sense as a tax on air.

    Mostly I just want to be hooked on to the municipal water system which is right at the end of my street. They refuse to bring the line down my street. Why?

  5. Kathy Callaghan :

    Another question would be, is there anything the legislature believes it doesn’t have to legislate?

    Each year 100 or more new laws are passed or existing laws amended. Think about this. Year after year after year.

    It stems in part from habit, or the need for them to do as they have always done. And, our compliance with the status quo. Please understand I am no fan of Rand Paul – he gives me the shivers. But in the interest of common sense, does the legislature have to have it’s hand in every aspect of our lives?

    Am I the only who feels we are overregulated?

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