Lawmakers take an early peek at tax reform

Lawmakers met Friday for a reminder of where they left state income tax proposals before the session ended in June. Secretary of Administration Jeb Spaulding, who joined the House Ways and Means Committee meeting to discuss related data-sharing between state offices, also had his memory jogged.

In early 2013, lawmakers discussed several ways to restructure the state income tax. Some recommendations became law with Act 73. A suite of other possible changes stalled in a conference committee, where select lawmakers try to work out the differences between House and Senate.

Committee members recalled that part of what had stood in their way was Gov. Peter Shumlin’s adamant opposition to any new or increased taxes. They asked Spaulding if there had been any “movement” in that regard.

“To be perfectly up front with you, we have no idea what the Legislature is proposing,” Spaulding said.

The pronouncement was met with more than a few incredulous stares, clenched jaws and guffaws around the room.

“When we ask the Joint Fiscal Office to provide a copy of it, we don’t get it,” Spaulding said. “When I ask Senator (Tim) Ashe (chair of the Senate Finance Committee) the same thing … I don’t get it.” Spaulding said the administration would be more than happy to review a legislative proposal for income tax reform, if there were such a thing.

Rep. Janet Ancel, D-Calais, chairs the House Ways and Means Committee. Photo by Hilary Niles/VTDigger

Rep. Janet Ancel, D-Calais, chairs the House Ways and Means Committee. Photo by Hilary Niles/VTDigger

Rep. Janet Ancel, D-Calais, chairs the House Ways and Means Committee. She quietly recalled to Spaulding the legislative proposal she handed Shumlin at a meeting before the summer break.

“That is the proposal we would like you to react to,” Ancel said. She clarified that it’s not an official conference committee recommendation. “And it has been the same thing since May.”

“We’d be more than happy to,” Spaulding replied. He expressed some confusion about whether the proposal was the same one put forth by the Senate, and admitted that he had not looked at it since May.

According to a review document prepared by Peter Griffin of the Legislative Council, the upshot of the proposal would be threefold:

• For tax year 2014 only, require a minimum tax on income greater than $125,000 of federal adjusted gross income. (The minimum would be either the existing Vermont income tax, or 3 percent of the taxpayer’s federal AGI.)

• Limit a taxpayer’s itemized deductions to 2.5 times the standard deduction that would apply to that taxpayer. (For married couple filing jointly, that’s typically around $30,500. This limit would start in tax year 2015.)

• Condense Vermont income tax brackets and lower their rates. (Where five tax brackets exist now, bookmarked by 3.55 percent and 8.95 percent tax rates, only four brackets would exist starting in 2015, ranging from 3.43 percent to 8.75 percent tax rates.)

Spaulding said whatever the Legislature proposes for income tax restructuring, it will not change the governor’s fiscal priority of establishing single-payer health care for all Vermonters.

“That is the single biggest financial lift that this state has ever undertaken,” Spaulding said. With that goal in mind, he urged committee members to tackle any changes to income tax comprehensively, rather than one piece at a time.

“Our hope is that people would at least consider the possibility that it might make sense to do this all at once, not some this year and some next year,” he said.

Some lawmakers expressed a preference for achieving some reforms soon, rather than delaying any change for the chance at a bigger bite of the apple down the road. Some concern also surfaced about how the public might respond to large-scale change.

But aside from some philosophical differences about reform strategies, the committee is grappling with limited access to tax data on which to base their decisions. A memorandum of understanding between the Tax Department and the Joint Fiscal Office has been in the works for some months.

The JFO would like to gain access to more tax data, so it can independently develop financial models that predict the impact of proposed tax changes. The Tax Department is reluctant to share information that might compromise personal personal privacy and corporate confidentiality. The two offices are working toward an agreement that will satisfy as much as possible of both of their needs.

“It is in our best interest to make sure you have access to good, reliable data when you’re developing these plans,” Spaulding said.

On this point, both Spaulding and the committee members appeared to agree.

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Comments

  1. Peter Everett :

    Nothing will change, Shumlin is a 1 percenter. Just like you and I, he doesn’t want to pay more in taxes. It is far easier for him to raise taxes on those who are not in power, than it is to raise taxes on himself and his wealthy supporters who keep him in office. All the rhetoric about helping those who need the help is nothing but empty words.
    I’m retired, every year some tax or another is increased, as well as prices on goods. As of now, I have been able to absorb the increases through creative living. I’m at the point, now, where the decisions are getting more difficult to make. In reality, I must take income that I could place into the local economy and put it towards whatever taxes have increased. There is no choice in this matter, I must pay my tax bill. Shumlin can easily afford to pay the increases, but, like you and I he doesn’t want to. Face it, do you want to pay the increases every year? I don’t, but, I’m not in power.
    We want services, they cost money. Revenues sources are limited. To keep up with inflation, where do we see sources inrease? Gas tax, Meals tax, property tax. You and I at the lower levels are affected far worse than the Governor and his friends. I really would like to see him take a larger hit so I don’t have to. It will never happen because he is like you and I…he doesn’t want to pay more. The big difference is…he is the one in control, so he won’t pay more, he’ll pass the needed increases onto you and I, hurting the local economy even more.
    Maybe, if more “common” people spoke out we could embarrass those in power to do the right thing and take some of the burden off us. Don’t hold your breath, though. They don’t listen or really care.

  2. Ann Raynolds :

    The proposal I understood was on the table briefly last spring was a recommendation of the Blue Ribbon Tax Commission which would definitely benefit middle and lower income folks. I am impressed and grateful that Speaker Shap Smith and legislators are pressing forward with this. We stand with these legislators and against any continued efforts of the administration to take money from lower income citizens. Please don’t confuse this with what will be needed for the Single Payer program; that is a lame excuse and totally inappropriate at this time.

    • Jim Barrett :

      Anytime time a politician starts talking about tax reform, that smile means more taxes at the bottom line. In addition, nothing is being actually done to pay for the biggest socialist experiment in history….Obamacare which is estimated to cost 1 to 2 billion of our tax dollars in Vermont. The suggestion that the poor not be burdened is laughable as most pay pay a dime now, it’s the middle class that pays.

  3. Phyllis North :

    Ancel and Ashe will not be satisfied until every higher-income Vermonter has changed his or her residence to Florida. If they don’t succeed at that with income tax reform in 2014, then the huge tax increases needed to pay for single payer should do it.

    • Jim Barrett :

      You are correct, people are leaving this state, especially the young because of taxes and no jobs.

  4. John Greenberg :

    Phyllis North and Jim Barrett: Please show us the numbers to back up your statements that “people are leaving this state” (Barrett) or “until every higher-income Vermonter has changed his or her residence to Florida.” (North)

    Every statistic I’ve ever seen says precisely the opposite. The number of high-income taxpayers in Vermont increases virtually every year.

    • Lance Hagen :

      John, maybe you should share sources that support your statement of “Every statistic I’ve ever seen says precisely the opposite. The number of high-income taxpayers in Vermont increases virtually every year.”

      • John Greenberg :

        The Vermont Tax Dept website lists income taxpayers by income category for the years 2000-2011 here: http://www.state.vt.us/tax/statisticsincome.shtml.

        • Lance Hagen :

          John, please explain why you think your reference supports your claim. I don’t think it does.

          • John Grady :

            2000
            829 $500,000 tax plus returns
            2005
            1207 $500,000 plus tax returns
            2011
            1217 $500,000 plus tax returns

            somebody posts a link and it’s easy to find the information to back up his claim and somebody can’t figure it out ?

          • Lance Hagen :

            Just because the number of filers in an income bracket change, it does not mean that people are not leaving the state because of tax policies, as Mr. Greenberg implies with his ‘precisely opposite’ statement. It very well could mean that income is the state is rising and more people are moving from a lower income bracket to a higher bracket. Just comparing 2006 to 2011 numbers, for filers between $0 – $60K, the numbers of returns decreased by 4,655. Does this mean that all these filers left the state? I think not. Also in these years, for filers between $60K – $500K, the number of filers increased by 9,624. Does this mean these filers moved into the state?

            The point is that, that the data referenced by Mr. Greenberg, says nothing about the ‘comings and goings’ of people based on taxes in Vermont. I have yet to see a study that supports the claims of Ms. North and Mr. Barrett or the opposite claim of Mr. Greenberg. The only difference is that Mr. Greenberg claims to have ‘statistical’ data to support his ‘precisely opposite’ position.

        • Tom Pelham :

          Here’s the complete string of $500,000+ returns from Tax Dept. data in nominal dollars for the period 2005 – 2011.

          2005 1207
          2006 1373
          2007 1571
          2008 1195
          2009 968
          2010 853
          2011 1217

          How this relates to in and out migration I’m not sure. It does say that the incomes of these high rollers are quite volatile. Further, Vermont’s Blue Ribbon Tax Commission looked at this question as well as taxing Vermont’s high income returns on pages 37 – 40 and came to the following two conclusions:

          Regarding migration:

          “The data shows that the aggregate and average amount of income earned by tax filers moving out is smaller than those moving in. It does not tell us anything about high-income earners or high net worth individuals moving in or out. It could be one wealthy individual and five college students moving out and six middle income earners moving in. The data has, however, been historically consistent indicating that there is no recent overall trend regarding tax changes and migration that is discernible.”

          Regarding tax policies targeting high income earners (> $500,000 AGI):

          “High-income earners are not a solid block of consistent interests; rather, they comprise a patchwork of tax filers that may have high income one year and then return to a much lower bracket never to return to high-income status again.

          All the Commission can say is that the conventional wisdom is not supported by the data. Furthermore, the Commission encourages Vermonters to abandon the discussion of what wealthy Vermonters are doing based on their taxes. Such speculation is murky and, even if it were not so, it is questionable and dangerous to design a tax code for fewer than 200 people.”

          http://www.leg.state.vt.us/jfo/reports/2011%20Blue%20Ribbon%20Tax%20Structure%20Commission%20FINAL%20REPORT.pdf

          For those interested in viewing migration data among states based on IRS data, this is a helpful interactive site. It appears Vermont is a net loser to Florida, New Hampshire and North Carolina and a net winner from fellow northeast states New York, New Jersey, Connecticut and Massachusetts.

          http://interactive.taxfoundation.org/migration/

  5. Walter Freed :

    Phyllis North is correct. Last week I joined many of my former legislative colleagues and switched my residency to Florida. I now have a Florida driver’s license and voter ID card along with plenty of sunshine.

    • Craig Powers :

      According to John Greenberg, and others,…your post is just anecdotal story, Walter. Complete fiction!

      • Jeff Royer :

        So because one guy named Walter did it, that means it’s a trend? Guess what, I’ve got a friend named Tom who just moved her from New Hampshire. So now we’ve balanced out the “trend” started by Walter.

      • John Greenberg :

        Anecdotes are not fiction, but they’re not statistical evidence for any proposition either. I know folks who smoked every day of their adult life and died at a ripe old age. Does that prove that smoking’s not harmful?

    • Jason Farrell :

      So you’re acting in retirement as you acted while purporting to represent your Vermont constituents; in your shallow self-interest? No surprise there, Squeaker Freed!

      • Walter Freed :

        Jason,
        When I served in the legislature my viewpoints were representative of my district. Fiscal constraint, lower taxes and economic opportunity made up much of the discussion. Since then the state has moved much more to the left with big government programs and higher taxes. In the past four years alone the legislature has raised the income tax, property tax, the capital gains tax, the gas tax and the estate tax just to name a few. Yet this seems to be the will of the majority of Vermonters as evidenced by their votes. No Jason, I didn’t retire. I voted with my feet. We moved our company office to Florida and now I reside there. I hope this big govenment, big tax plan works out well for you and Vermont’s new majority. I’m just not buying the plan.

        • Jason Farrell :

          It’s not at all surprising to read that your commitment to the state of Vermont, and my fellow Vermonters, is the same today as many Vermonters suspected it always was; absolutely relative to your own self-interest. You had a few years of opportunity as the Speaker of the House to unite Vermont in a time of unnecessary divisiveness, and instead you chose to attempt, with abject futility, to divide our state for your own political gain. History has shown that you chose poorly; both for your political career and for the state of Vermont. Your failed leadership partly accounts for the state of the Republican party in Vermont, today. You willingly led your party into the wilderness that they’ve yet to recover from. Your departure from Vermont politics was as un-ceremonious as your business leaving our state, when you chose not to run again amidst the prospect of sure deafeat.
          May your business find as much success in Florida as history has, and will continue to judge your political career in Vermont. While you may be a good salesman to some who don’t know you, the majority of Vermonters will never again buy whatever it is that you’re selling. Toodles.

  6. Karen McCauliffe :

    To the folks a few comments earlier, discussing the movement in and out of the state. The reality is that Vermont had a loss of population in 2012. Is that significant?

    Plus a point that has never been brought up in the second oldest state, many of us are nearing the retirement age. Many of the “older” Vermonters approaching retirement age will relocate to other states to follow their adult sons and/or daughters.

    Vermont’s percentage of retirees leaving to follow their “kids” should be higher than most states just because we already are the second oldest state. Some Vermonters are getting old, weary and missing their kids in other states.

    http://www.boston.com/news/local/vermont/2013/02/13/experts-population-loss-challenge-growth/lNJvSNEqYxsTSUwaE5MuGJ/story.html

  7. John Greenberg :

    Lance and others are missing the point I made by burying it in a discussion of migration.

    The point is simple. Despite repeated warnings that Vermont’s high marginal income tax rates on high-income folks will result in FEWER high-income taxpayers over time, the actual trend is just the opposite: there are more of them in most years.

    Migration is a red herring in this discussion. It really doesn’t matter whether every single high-income Vermonter moves out of state every year, if MORE high-income folks come into the State to replace them. Whether they all leave or some stay, the fact of the matter is that, despite Vermont’s tax rates, there are MORE of them year-by-year.

    It might be noted that the years of decline in Tom Pelham’s figures correspond to the worst recession in US history since WWII and the ensuing recovery. VT tax rates did not go up in those years. In fact, they went down in 2009 and then again in 2010.

    • Tom Pelham :

      “VT tax rates did not go up in those years. In fact, they went down in 2009 and then again in 2010.”

      Yes, in the 2009 budget bill, income tax rates went down a smidgeon, but income tax burdens were also simultaneously increased. This is because of the significant restructuring of the capital gains exclusion passed in 2009 and phased in over 2009 through 2011. Per the 2011 Tax Expenditure Report on page 11 and the 2013 Tax Expenditure Report on page 18, (see link below), the estimated foregone tax revenue attributable to the exclusion from taxation of capital gains income diminished significantly as follows:

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

      As an illustration of scale, the $52.6 million delta between 2008 and 2011 equals 9.5 per cent of all 2011 revenues from the personal income tax which in that year went up 11.1%.

      http://www.state.vt.us/tax/expenditurereports.shtml

  8. Karen McCauliffe :

    Here is a link with some statistics of migration in and out of Vermont in the year 2010. Thanks to the Pubic Assets Institute and Vermont Biz.

    “…Those coming to the state still have higher average incomes. So, even in years when out-migration has exceeded in-migration, the total personal income in the state has increased…

    In 2010, however, that changed. Vermont saw a net loss of income for the first time since the IRS began to publish this data. According to the latest report, 13,422 people moved into Vermont in 2010. Their total adjusted gross income was $353.9 million. The same year, 14,071 Vermonters moved away. Their income added up to a bit more: $356.3 million….”

    http://vermontbiz.com/news/january/report-fewer-newcomers-call-vermont-home

  9. Walter Cooper :

    Vermont’s troubled age demographics should give Montpelier pause as it considers backhanded income tax policy.

    My family is a good case–one of a handful of professional families with kids, in a town now dominated by retiree second home owners. Vermont is our home, but our jobs are in NH and MA.

    If we moved across the river, the Boomer that buys my house will likely pay little or no income tax to Vermont. No other state in the country is losing K-12 school enrollment as fast as we are.

    We work long hours, pay a nanny (on the IRS books), and are active in the community. We both work for non-profits, but spent heavily and put in years of work to attain moderate earning power. My wife’s skillset in particular was hard for her employer to find–her job was open for over a year before she filled it.

    The Boomers have the serious capital in Vermont, and it’s increasingly in land, investments, etc.–not earned income. Boomer wealth is hard from the Dept. of Taxes to touch; it should not then look to its next-best target. Again, we already pay some of the highest state-level income tax in the U.S.

    As it is, my family can just put a little post-tax money in the bank for college savings each month. If that modest ability gets confiscated, we move. It’s only 20 miles, though not what we want. Vermont then loses the tax on my income, my wife’s, our nanny’s, and gains a another passive, part-time resident.

    So yes, there are real, live Vermonters with choices, ready to act on this issue.

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