Editor’s note: This edited film clip was produced by videographer and filmmaker Catherine Hughes.
The two big money bills are now in the Vermont State Senate’s court: the miscellaneous tax bill and the budget. It looks like the Senate will consider significant changes to the former, when it considers two new taxes – an assessment on water extraction and an alternative minimum tax that would hit the wallets of wealthy Vermonters who have sidestepped the state income tax.
There could be more tax proposals to come before the end of the session, given the $38 billion in federal budget cuts Democrats and Republicans in Congress agreed to late Friday night. The state has already had to make significant program reductions and raise new revenues through a brace of provider taxes in order to fill a yawning $176 million budget gap. If the congressional budget proposal takes a deep bite out of the state’s fiscal year 2011 budget, both John Campbell, Senate President Pro Tempore, and House Speaker Shap Smith have said they would have to assess the impacts on the state’s $4.6 billion budget. At this juncture, Congress has not yet released the list of cuts.
Campbell spoke with VTDigger.org last week about where he stands on tax proposals from the House, the Shumlin administration and inside the Senate. He opposes the House proposed 27-cent increase in the tax on cigarettes and a new assessment on dentists in the governor’s budget. (Nevertheless, on Thursday, the Senate Health and Welfare Committee voted to recommend a $1 a pack increase in the cigarette tax.)
Campbell has also rejected Washington County Sen. Anthony Pollina’s proposal to place a temporary surcharge on the wealthiest 5 percent of Vermonters who will receive $190 million in federal income tax breaks this year as a result of an extension of the Bush-era tax cuts.
“Pollina had suggested there be a tax on the wealthiest of the wealthy Vermonters just for a short period of time,” Campbell said. “While that has merit, when we’re looking to find major revenue sources in some really bad times — I think we were able to avoid that this year — we were able to avoid a catastrophic shortfall, if you will, so I don’t think we need to go in that area.”
Meanwhile, Campbell says two proposals from Sen. Tim Ashe, D/P-Chittenden, could be promising — the “alt min,” as it’s called among policy wonks, and a possible tax on companies that ship water to out-of-state bottling plants.
In tax year 2009, there were 298 Vermonters who earned more than $100,000 and paid no taxes (seven of whom were millionaires), and 1,028 residents in that income range who paid less than $1,000 in taxes that year, according to information from the Tax Department. Ashe says if the state piggybacks on the federal “alt-min” tax, it could raise $13.2 million by asking “high earning, low paying Vermont filers” to pay into the income taxes.
“Most people don’t realize there are people making a whole lot of money and not paying much into the system,” Ashe said.
Under the federal alternative minimum tax, filers can only claim single exemptions regardless of family size, they cannot itemize deductions for state and local taxes on income and property and they are subject to a limit on deductions for medical expenses and mortgage interest, according to an issue brief from the Joint Fiscal Office.
The state jettisoned the alternative minimum tax in 2002 when it stopped using a “piggyback” income tax system, based on a percentage of the federal tax liability. At the time, there were concerns that middle class taxpayers would be captured under the alternative minimum; since then the feds have raised the income level that triggers alt-min rules, according to Ashe. Under the senator’s plan, the tax would be collected in the 2012 tax year.
The alternative minimum liability for 166 of the state’s millionaires (based on 2008 tax data) would be $13,955 on average. About 600 tax filers who earned between $500,000 and $1 million in 2008 dollars would be liable for about $3,700 each under the proposal.
Campbell said he believes Republicans in the Senate will support the alternative minimum because it’s a “fundamental fairness issue.”
“There are many wealthy Vermonters who want to help out in the tough times that we’re facing,” Campbell said. “We’re fortunate that there are people that really do understand that we need their assistance in trying to protect citizens of Vermont and making sure that essential services are still available – provided – to them.”
Ashe also wants to revisit the water extraction assessment, which was first proposed by Rep. Chris Pearson, P-Burlington, in the House. (His amendment failed.) Since then, Ashe has determined that a per-gallon tax on water removal from state groundwater stores would raise less than originally anticipated. It was originally thought that 100 million gallons were pumped out of the ground in Vermont each year; that number is actually 32 million, according to the Agency of Natural Resources.
Three companies extract water from Vermont sources – Vermont Heritage, Vermont Natural and Pristine Mountain Springs, according to a memo from Rodney Pingree, of the Agency of Natural Resources. Two more companies have two extraction applications in process. Of the three businesses in operation, Pristine Mountain Springs taps the most from groundwater sources – about 30 million gallons. All told, the companies remove about 32 million gallons from the state. Ashe says a 10 cent tax per gallon would raise about $3 million in tax revenues. Right now each company pays $2,700 in one-time extraction rights for the water.
“We have declared surface or groundwater a public trust and that is a part of Vermont we should and need to protect it,” Campbell said. “If someone is going to take that resource and sell it out of state for profit, I think that Vermonters are entitled to be compensated for that.”
The other “extraction” tax
Campbell said while he can support about $20 million in additional assessments on nursing homes, home health care agencies and hospitals, which have been built into the state’s Medicaid reimbursement system over the years, he opposes the governor’s push for a $3.6 million assessment on dentists.
Campbell doesn’t rule out a provider tax on dentists in the future, but he wants to wait on imposing the levy for now.
“(For dentists this year) I think there is a little bit of a fairness issue with what to expect when planning their budgeting,” Campbell said. “I think that’s something that should be looked at in future, but it’s something I’d like to avoid if I could.”
The House rejected the “tooth tax” because the House Ways and Means Committee decided there wasn’t enough data to determine the impact of the new assessment, which was tied to an increase in reimbursements to dentists who were willing to take more Medicaid patients. The committee made up the difference by putting an additional 27 cent tax on the sale of each pack of cigarettes.
Campbell says no to quick tax fix with cigs
Like the governor, Campbell is adamantly opposed to an increase in the cigarette tax unless the state needs fast cash. With income tax revenues, there is a lag between passage of a tax bill in the Legislature and collections by the Tax Department.
“Quite frankly I’m not a huge fan of the cigarette tax unless we have to raise money quickly and have to have it at hand,” Campbell said. He opposes a pack hike because of the impact it would have on retailers along the state’s New Hampshire border (Campbell represents Windsor County). “If there was a possibility of moving toward another revenue source rather than doing that I think that it’s incumbent on us to look there,” Campbell said.
Campbell is also worried about raising revenues to defray the impact of congressional budget cuts on the state’s budget in the current fiscal year and the following year. “I think next year, based on what I see for revenue projections, and also what’s happening in Washington, D.C., we’re going to need some very quick revenue, some quick capital so I foresee next year is probably the time to go to the tobacco tax,” Campbell said.
Sen. Claire Ayer, D-Addison, described her committee’s recommendation for a $1 a pack increase as a “twofer.” The tax hike would raise about $10 million for the state – and, according to Ayer, discourage Vermonters, especially teenagers, from smoking. Her committee, she said, was most interested in the potential health benefits of raising the tax. The money, however, would not go toward smoking cessation efforts, but would be used to pay for unspecified General Fund expenditures.
