On Tuesday, Gov. Peter Shumlin and legislative leaders agreed to eliminate any new General Fund taxes this year, effectively killing a number of provisions in the miscellaneous tax bill, H.528.
A day later, however, lawmakers found a way to give the bill some heft. They are considering a “net neutral” proposal that would take the state a few steps closer toward eliminating deductions, and in the view of the committee, making the tax code fairer for middle class Vermonters.
Most states tax residents based on adjusted gross income: only eight states, including Vermont, tax residents based on taxable income, or the amount taxpayers report after they have claimed deductions.
The tax conference committee is taking a middle of the road route. Instead of going straight to AGI, and eliminating all deductions, they are looking at a cap on itemized deductions (2.5 times the standard deduction, or $29,750 total for a married couple), offering only the standard deduction and capping mortgage deductions at $12,000 (with a 3 percent minimum effective rate for Vermonters who earn more than $125,000). In the first two aforementioned proposals, the tax rates would be compressed to four and the top marginal rate would drop from 8.95 percent to 8.7 percent.
In all three models, there is no effective change in the total amount of revenues generated. That’s why the lawmaker say it is a “net neutral” proposal.
The basic idea isn’t new: It is an extrapolation of the Vermont Blue Ribbon Tax Structure Commission’s proposal from three years ago.
Rep. Janet Ancel, chair of House Ways and Means and a former tax commissioner, has been working with her committee on drawing up proposals of this sort ever since. Sen. Tim Ashe, chair of Senate Finance, is interested in making the tax code more equitable.
Though the proposals raise no new taxes in the aggregate, in the particulars there are winners and losers. The winners are middle class Vermonters who see a slight decrease in their tax burden; the losers are upper income Vermonters who would pay a bit more.
Sue Allen, the governor’s press secretary, said the proposed income tax changes are not within the parameters of the “no new tax” deal.
When Shumlin was asked about details of the deal at his weekly news conference, he wouldn’t talk about specifics and whether net neutral policy changes would be subject to his veto pen. “I’m encouraged that legislative leadership has come to consensus with me that we not raise taxes beyond the gas tax this year, and my view is that while there’s been some great work done on both sides … our job now is to complete the business of the session and come back next year ready to continue conversations,” Shumlin said.